Operating lease is a type of lease based on an agreement in which the lessor delegates to the lessee the use of an asset for a certain time, in exchange for a one-time payment or a series of installments.
In today’s article we give you to know its main advantages for its application in companies.
Difference between operating and financial lease
Confusion between the two concepts is very common, so it is very important to differentiate them clearly.
The financial lessee is the acquisition with the transfer of the risks and benefits of the material being exchanged, together with a final purchase.
While the operating lease has a certain price for a certain time. The landlord has a number of additional services, such as the following: technical assistance, insurance or other services that require that good.
Advantages of operating leasing
This type of rental has an important number of advantages.
Among them, you may find that there is no expense for the property. This means that, as a tenant, you do not have to take care of maintenance or the payment of taxes or any other expenses derived.
All this falls on the owner himself of the object in question. Since, at the end of the term, you have to return it only with the wear and tear of use.
In this type of contract, there are usually no initial payments,which allows you to have this equipment even if you do not have the necessary capital for the investment.
It is usually used for objects that innovate, technologically, every so often,such as computers, cars or other devices. So this method allows you to keep them always updated.
Operating lease accounting
This way of obtaining a service also has benefits at the accounting level. One of the most important is that it helps you reduce dependence on bank credit.
The accounting lease does not compute in the assets of the company,so it does not appear in the return on them or increase the debt.
Another important fact is that it is accounted for as an expense. This means that you can deduct the cost in the Income or Corporation Tax.
Thanks to all this you get to have a greater availability of capital,since you do not have to invest it in a good. When the contract ends, you can still have an estimate of expense similar to the previous one.
Disadvantages of operating leasing
The main disadvantage is that you have no option to buy. This implies that, once the rental period is over, you will have to negotiate it again; or, failing that, you will have to return it. You will amortize its use, but not its purchase.
Another disadvantage of operating leasing is that you have to decide the duration of the contract at the beginning.
Therefore, if you stop using the good before its completion, you must continue to pay anyway.
You have to be very clear about the usefulness that you are going to give to that good, to decide the duration of the contract.
An example of an operating lease
One of the most common assets you can get in this type of lease are company vehicles. These usually have a great deterioration, so it is important that they are renewed from time to time.
If you decide to opt for this rental system, your company will simply have to take care of the fees.
These generally vary from year to year and depending on the rise of a concerted rate, such as, for example, the CPI. It will also take care of the main expenses of use, such as gasoline.
The lessor will have to take care of the maintenance, insurance and other derived expenses,such as those concerning security.
At the end of the contract time, your company may choose to replace its entire fleet, renegotiating with the current landlord or negotiating with a new one.
In this way, it is achieved that all the cars of your company have optimal conditions and the latest advances.
You can apply this same reasoning to other types of goods, such as computers, specialized software or heavy machinery.
Operating leasing, a way to save costs
After analyzing the
advantages and disadvantages of operating leasing
and knowing some example, you should keep in mind that it is a very useful tool if you do not want to make a large outlay startsl. It is also if you intend to have the equipment or goods fully updated.
The duration of the contract is something to take into account to get the most out of the operating lease.
The leased must be useful for as long as you establish, in order to amortize its use. You must not forget the tax advantages that this type of rental can offer you.
Finally, you have to remember that there is no option to buy. The investment you are going to make is solely and exclusively for use. Never to get the property of the rented.