The lessor purchases the assets, delivers them to the lessee, and collects the rent regularly. However, the contribution of the lessor shall not be less than 20%-40% of the asset price.
The lender provides the remaining funds and collects interest from the lessor. This kind of loan has no recourse. Once the lessee breaches the contract, the lessor has no obligation to repay the debt to the lender, but the lender can protect itself in two ways:
(1) has the first lien on the leased assets; (2) If the lessor breaches the contract, the lessee must pay the rent directly to the lender.
Extended data:
Advantages of leveraged leasing:
Stimulate leasing companies to buy rents.
Some leased items are too expensive, and the leasing company is unwilling or unable to purchase and lease them separately. Leveraged leasing is usually the only feasible way to lease these projects.
Reduce the lessor's rental cost
The governments of capitalist countries such as the United States stipulate that the lessor can enjoy various tax reduction and exemption treatments according to the full value of the assets, whether it is purchased with free funds or borrowed funds. Therefore, in leveraged lease, the lessor can enjoy tax reduction and exemption treatment such as depreciation according to 100% of the value of the leased assets, which greatly reduces the lessor's lease cost.
The rent of rented houses is relatively low.
Under normal circumstances, the lessor of leveraged lease is generally willing to transfer part of the above benefits to the lessee at a lower rent, so that the rent of leveraged lease is lower than that of general financing lease.
Relatively beneficial to the lessor
In leveraged lease, the loan participant has no recourse to the lessor, so it is more beneficial to the lessor than general credit, and the funds of the loan participant can also be reliably secured on the leased property, which is safer than general credit. Most of the objects of leveraged leasing are large items, such as civil airliners.
Conditions:
1. has all the conditions for a real lease;
2. The lessor must hold at least 20% of the minimum risk investment at the beginning of the lease period and during the validity of the lease period;
3. When the lease expires, the residual value of the leased property must be equivalent to 20% of the effective life of the original equipment, or it can be used for at least one year;
4. When the lessee exercises the purchase option stipulated in the contract, the price shall not be lower than the fair market price of the asset at that time. The rental market in China is not very developed. In practice, leasing forms are mostly typical financial leasing and leaseback, and the role of leveraged leasing has not yet been brought into play.
Baidu encyclopedia-leverage lease