The three forms of financial leasing are direct leasing, leveraged leasing, and sale and leaseback.

Differences from traditional leasing

An essential difference between financial leasing and traditional leasing is that traditional leasing calculates the rent based on the time the lessee leases and uses the object, while financial leasing calculates the rent based on the lessee’s occupation. Financing costs are calculated at the time of rent.

It is a highly adaptable financing method that emerged when the market economy developed to a certain stage. It is a new transaction method that emerged in the United States in the 1950s. It has adapted to the development of modern economy. requirements, so it developed rapidly around the world in the 1960s and 1970s. Today it has become one of the main financing methods for enterprises to update equipment, and is known as a "sunrise industry." After my country introduced this business method in the early 1980s, it has developed rapidly over the past thirty years. However, compared with developed countries, the advantages of leasing are far from being fully realized, and the market potential is huge.

Differences from installment payment

(1) Installment payment is a purchase and sale transaction in which the buyer not only obtains the right to use the traded item, but also obtains the ownership of the item. Financial leasing is a kind of leasing behavior. Although the lessee actually bears the costs and risks caused by the leased object, legally speaking, the ownership of the leased object still belongs to the lessor in name.

(2) The accounting treatments of financial leases and installment payments are also different. In a financial lease, the ownership of the leased property belongs to the lessor, and the leased property is regarded as a long-term receivable; the lessee includes it as a fixed asset and makes depreciation provisions. Items purchased on an installment basis are owned by the buyer and are therefore included on the buyer's balance sheet and are responsible for depreciation.

(3) The above two items lead to differences in tax treatment between the two. In a finance lease, the lessor can deduct the amortized depreciation from the accrued income, while the lessee can deduct the amortized depreciation from the taxable income. In an installment transaction, the buyer can deduct the amortized depreciation from the accrued income. Depreciation is deducted from taxable income, and buyers can also deduct interest costs from taxable income. In addition, the purchase of certain fixed assets can also enjoy investment tax exemptions in some Western countries.

(4) In terms of term, the payment term of installment payment is often lower than the economic life of the transaction item, while the lease term of financial lease is often equivalent to the economic life of the leased item. Therefore, the credit period obtained through financial leasing for the same item is longer than that obtained through installment payment.

(5) Installment payment is not a full credit, and the buyer usually has to pay part of the loan on time; while financial leasing is a full credit, which covers the entire lease price, including transportation and insurance. Financing is provided for additional costs such as installation and installation.

Although financial leasing usually requires a certain deposit to be paid at the beginning of the lease, this fee is generally much less than the prompt payment required for installment transactions (for example, in import and export trade, the buyer A minimum payment of RMB 15 is required in cash). Therefore, for the same item, the total amount of credit provided by financial leasing is generally larger than that provided by installment transactions.

(6) There are also differences in payment time between financial lease and installment transactions. The latter is usually at the end of each period, and there is usually a grace period before installment payment. Finance leases generally do not have a grace period, and rent needs to be paid after the transaction begins. Therefore, rent payment is usually at the beginning of each period.

(7) When the financial lease expires, the leased object usually has a residual value. The lessee generally cannot dispose of the leased object at will and needs to go through procedures such as exchange or purchase. The buyer of an installment transaction owns the traded item after the specified installment payment and can do whatever he wants with it.

(8) The objects of financial leasing are generally items with longer life and higher value, such as machinery and equipment.