Just like there are advantages of leasing to a lessee (the user of an asset), so are there benefits of leasing to a lessor (owner of an asset). The factors that encourage a lessor to provide leasing facilities include:
- Leasing widens the market for a manufacturer/dealer of equipment. Thus, a manufacturer/dealer can offer lease arrangement without necessarily investing additional capital.
- Lease rental income received periodically is easily predicted on which future cash flow projections can be made for planning purposes. In addition, a manufacturer whose business is seasonal or cyclical in nature will find leasing as a means of spreading sales income evenly throughout the year.
- Leasing also provide opportunities for planned obsolescence of equipment in the sense that a manufacturer/lessor, can offer the lessee new and more efficient equipment to replace the existing one in use before the lease term expires. This way, a manufacturer can easily introduce new products on a regular basis.
- Lessors also enjoy good profit potential from the residual value of leased equipment at the end of the lease term, especially at times of rising prices. Alternatively, the lessor may re-arrange a secondary lease either to the lessee or a new user at new prepackaged rentals.
- Leasing provides considerable profits to lessors who can increase their financing rate to cover their expected return on investment and all associated and incidental costs, in addition to the profit deriving from the salvage value of the asset.
- Lessors are able to purchase assets from manufacturers and distributors at a discount, which they then lease out at full cost, thus enhancing their profits even further.
- A lessor as the owner of the asset has stronger legal right to repossess the leased equipment from a defaulting lessee, than a secured creditor who may experience costs and delays in recovery assets that he has directly or indirectly finance.
- Leasing also provides financial leverage to a lessor in terms of enhancing return on equity through limiting the amount of receivables due and increasing the interest on capital invested in financing the purchase of the equipment. In the case of Wrap leases, the lessor indeed commits practically no funds at all but earns some returns.
- Leasing is simple to document. The formalities involved in lease transactions are straight forward for both the lessee and lessor. Leasing is normally devoid of the complexities of comparable borrowing or capital raising arrangements.
- Leasing is an additional type of finance for financial institutions. New business opportunities are opened up by increasing the range of services.
- Syndicated/Consortium leases are also used as tax shields by lessors.
- Leasing gives a lessor/manufacturer, the opportunity of diversifying his product/service facilities to a wider range of uses, thus expanding the market through product/service differentiation.
- Upon meeting certain criteria, the lessor can be entitled to some tax benefits. In operating lease for example, the lessor is entitled to claim capital allowance on leased assets, which qualifies for expenditure. Hence, lessor’s actual capital outlay for any leased asset purchase is relatively low.
Further details about investing in this fast growing industry, do not hesitate to contact the experts and learn from the best. Visit the Secretariat or call 08023176691, 08023179048, info@elannigeria.org for further engagements