The true Operating Lease is an “off balance sheet” financing tool that only passes the benefit of use to the lessee; the lessor assumes ownership and residual value risks.
If the lease is cancellable, then it automatically qualifies as an Operating Lease. If the lease is non-cancellable, then the lease structure must pass the accounting standards AASB 117. A lease is a finance lease if it effectively transfers substantially all the risks and benefits incident to ownership. The substance of the transaction determined the classification.
Why would a customer want an Operating Lease?
- Multi-nationals and listed companies may have balance sheet constraints that would mean a finance lease or loan would impact return ratios, gearing ratios etc
- From a taxation perspective, the operating lease payments are classified as an operating expense and charged against profit & loss
- The company does not have to be concerned with equipment values at the end of the lease term, they are under no obligation to buy the equipment or to deal with the equipment
- The company may have capital expenditure restrictions
- The company may not want to own the equipment, but rather use it for a specific term and then return it
- We can finance not just the equipment but also professional fees, delivery & installation charges and all other costs associated with the equipment. Operating Lease can provide a 100% finance solution
- The Vendor lease does not use credit limit with the company’s main bankers, but is an additional source of funding
- The repayments can be structured to meet the customer cash flows.