What is leasing?
The term "leasing" comes from the English verb "TO LEASE," meaning "to provide or take on rent." It is an ACTIVITY that involves acquiring fixed assets and providing them to individuals or legal entities under predetermined conditions and terms.
According to the current legislation of the Republic of Armenia (Articles 677-684 of the Civil Code), leasing is characterized as a process in which, under a leasing contract, the lessor undertakes:
To acquire the specified property in ownership from the seller chosen by the lessee and transfer it to the lessee for temporary possession and use in exchange for payment.
How does leasing work?
The leasing process involves direct and indirect participants in the transaction.
Direct participants:
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Lessors
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Lessees
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Suppliers
Indirect participants:
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Insurance companies
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Investors
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Transport companies, etc.
Why is the demand for leasing growing?
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Equipment depreciation has reached high levels in enterprises.
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The cost of new equipment has increased, rent has become more expensive, and loan interest rates have also risen.
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Leasing is profitable and convenient: rental is equated to leasing.
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The volume of leasing operations in Armenia is rapidly growing.
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As of the third quarter of 2022, the net leasing investment portfolio amounted to 78.7 billion drams.
Types of leasing
There are 4 types of leasing, subdivided into:
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By ownership transfer possibility
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By duration
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By market
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By transaction nature
Also common are:
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Investment leasing
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Deferred leasing
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Leveraged leasing
What is subleasing?
Subleasing is a type of leasing agreement where the lessee transfers the leased asset to a third party under leasing terms.
What is reverse leasing?
Reverse leasing is a leasing contract where the lessor acquires property from the lessee and then leases it back to them for temporary possession and use.
Golden rules of leasing
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Leasing starts from the moment the asset is used.
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Financial leasing entails only monetary obligations; operational leasing includes both monetary and asset obligations.
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Leasing is neither a loan nor rent; leasing is leasing.
Leasing is not a loan
Key differences:
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In leasing, the asset belongs to the leasing company until the contract ends; in a loan, it immediately becomes your property.
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Leasing payments cover only the use, while a loan includes full asset cost plus interest.
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Leasing enables access to new equipment without significant investments.
Leasing is a tool for financial stability and business growth.