Leasing Basics

What is leasing?

Leasing is a financial operation whereby you obtain the "availability" of an asset (for example, an automobile, a piece of machinery or a real estate facility) which is purchased according to your choice by the leasing company with which you draw up the contract. In practice, the leasing company buys the asset directly from the supplier; you, however, are the one who chooses the type of asset to buy and the supplier to buy it from; you negotiate the price and the payment conditions, and you use the asset after its delivery.

What does the leasing company offer me?

It finances the total cost of the chosen asset for you, VAT included. It offers you a series of additional services connected to the ownership of the asset (insurance coverage, for example).
It gives you a quick response to your application for financing, immediately providing you with a cost estimate so you can make the necessary assessment of the expediency of the initiative. Whenever possible, it obtains information about the supplier and the price of the asset, thus offering you an indirect additional check of the investment. Above all, at the end of the contract it offers you the chance to become the owner of the asset at a pre-established price; this price is generally equal to 1% of the original cost of the asset (for example, if the asset was a car which cost €25,000, the price at which you can buy the car at the end of the contract is €250.).

What does the leasing company ask of me?

Punctual payment (normally once a month) of the leasing fee agreed upon. The fees (apart from any indexing for variable-rate leases) are always the same, except for the first payment, which is often higher than the following regular instalments.

What do I need to enter into a leasing agreement, and what assets can I choose?

First of all, you must have a VAT code, although that's not essential for leasing certain special classes of asset such as boats and motor vehicles that are also intended for private use. As a general rule, any type of asset can be financed through a leasing agreement, as long as its use is instrumental to your business. However, from the point of view of the leasing company, the type of asset affects the risk involved, and a preliminary assessment of your ability to pay always plays a part in deciding whether to grant the lease and in setting its conditions. Asset type also affects the duration of the lease, especially with regard to its tax deductibility: in the case of capital goods, the duration cannot be less than half of the ordinary depreciation and amortisation of the good (for example, for a car the lease must be for at least 24 months); in the case of real estate, the duration cannot be less than 15 years.

How can I get an idea of how much a lease would cost me?

All you have to do is ask for an estimate. Here is the essential information the leasing company needs to make you an offer:

• Cost of the asset: (for example, €50,000 + VAT)
• Asset: (brief description indicating if possible the official depreciation rate for the good being acquired)
• Supplier: (name, address and VAT number)
• The supplier's payment conditions: (for example 10% at the time of order and the balance at 30 days after delivery and testing)
• Requested duration of the contract: (number of months or years)
• Frequency of the payments: (for example monthly).