What is leasing investment and what you should know

13 May 2024

Rating Forex will help you understand what investment in leasing is, how an investor can become a participant in the process of lending to enterprises and make money from it 💰.

❗ Do you need someone to talk about leasing in simple language? Want to get professional advice online at a convenient time? Rating Forex will help you for free🆓. We’ll tell you everything you need to know to really make money 💸.

About leasing in simple words

When a business needs machinery and equipment, it can set aside money from its income to buy everything. This is the cheapest option. At the same time, the capital will remain idle until the required amount is accumulated ⛔.

The second option is to take out a loan from a bank, buy everything you need, and use it all. This scheme is welcomed by established companies and new enterprises.

There is still a real opportunity to rent the necessary equipment, use it, and then return it to the owner. This option is suitable if short-term goals are set.

So how does leasing work? This is a combination of a loan and a lease. Client:

📍 Takes the necessary equipment (most often a vehicle). He pays for it as if he took it on credit.
📍 At the end of the payment period, he receives ownership.

The difference between leasing and a loan is that you can get more flexible terms.

❗ For example, if a company purchases transport for seasonal work, it pays more during the season, and less during periods of downtime. This allows you to distribute the financial burden according to the specifics of the work.

Who is leasing suitable for?

This form of lending, such as leasing, is mainly used by legal entities, but is also available to individuals. The last thing you need is:

☑️ read all documents carefully;
☑️ carefully compare offers from companies offering leasing purchase services.

A loan may be more profitable due to the absence of VAT.

Leasing investments are not available for everyone. For example, you cannot lease (that is, rent with the right to purchase) a plot of land, a natural object, or other property that:

🔊 owned by the state;
🔊 cannot be in free circulation according to current laws.

But there is an opportunity to buy livestock.

Due to high risks, leasing companies do not want to cooperate with those enterprises that have been operating on the market for less than a year. But more often than banks, they accommodate newcomers halfway.

If the client of the leasing company is unable to pay, it will simply take away the transferred property. So the risks for her are not that high 👌. The selected property can be transferred to other clients. This is what the leasing business is built on.

❗ Real estate leasing has become popular. Instead of mortgages and loans, people draw up leasing agreements. This gives you a chance to use the property at your discretion, while paying a reasonable premium.

Why do you need leasing?

Leasing as a form of purchasing property manifests itself with vehicles. It is suitable for both individuals and entrepreneurs.

A loan is money allocated for the purchase of transport 🚐, which serves as its collateral. In the case of leasing, a person receives a car for rent with the right to buy.

❗ It is not necessary to buy a car at the residual price. Rent payments are made on schedule 📝 every month.

INWhen issuing a loan, the bank focuses on the cost of the car and takes into account the client’s financial capabilities. The leasing company provides exactly the transport that a person wants to receive.

You will have to enter into 2 agreements with the bank at once – a loan agreement and a collateral agreement. There is only one with the leasing company.

❗ The validity period of the document is chosen exclusively by the client based on personal preferences. It will not be possible to select a time period that is too long. But the scope is quite wide.

When buying a car on credit, a person becomes the owner immediately. But his rights as an owner are limited by the pledge agreement.

In the case of a leasing company, the vehicle remains registered to the leasing company. The situation will change only when it is redeemed.

If you buy a car on credit, the purchase itself, registration, insurance, taxes and maintenance will have to be paid separately. The leasing company provides transport after all these steps.

When a car is financed, its owner pays the loan, interest and commissions. In leasing – only part of the cost and rental service. Moreover, the schedule can be individual. As a rule, it is offered for agricultural technology.

❗ After receiving a loan, all legal issues fall on the buyer. In the case of leasing, this is the responsibility of the leasing company.

DFor individuals and small entrepreneurs, a car loan is cheaper. Leasing attracts:

🟢 additional options,
🟢 more flexibility.

For medium and large enterprises, overpayments are not a problem. They can offset the costs due to VAT by taking into account depreciation and other costs.

The main advantage is a leasing carnot necessary needs to be redeemed. It can be used as needed. If the situation at the enterprise changes, you can refuse the lease by leasing another vehicle. The same is true with special equipment and even with real estate.

❗ Many companies consider investing in leasing as a more profitable way to optimize their work. In the West, this approach has been used for many years by individuals and legal entities. In the Russian Federation it is also gaining momentum. Including in the private sector.

Who is involved in leasing?

Banks issue loans, including for transport (car loans). Who is in leasing then? Separateleasing companies that receive investments from renting out various property with subsequent purchase – from transport, equipment to machine tools, residential properties.

In the Russian Federation, leasing companies can be divided into 2 large groups. The first 1️⃣ includes organizations that are part of bank holding companies. They have access to preferential bank loans to conduct their activities.

❗ Companies from the first group take out a loan from the bank, buy equipment for the client with it, carry out all related procedures and transfer it for use. They offer adequate conditions because financial institutions lend to them at a reduced rate.

The second group 2️⃣ are companies that are not part of banking groups. It is not profitable for them to take out loans for leasing investments from financial institutions, because they simply will not pay off. Competitors will crush you with lower prices. Therefore, representatives of non-bank leasing companies have to go to stock exchanges and place bonds there.

Major players in the leasing industry, for example, RESO-Leasing, Baltic Leasing, Europlan, use bonds to distribute sources of borrowed capital. That is, they can borrow from a bank, from participants in exchange trading.

❗ Small companies choose bonds to attract unsecured funds. The same “SME-leasing” and “PR-leasing” have the lion’s share of the portfolio in loan collateral.

Very popularbonds for leasing companies. This is an alternative to secured bank loans. Bonds are easy to use. New issues make it possible to refinance loans and current liabilities. Thanks to this, companies can offer clients deals that are not limited by the requirements of the lending bank. That is, their terms and volumes are greater.

In June 2023, an excellent opportunity arose for the next stage of bond sales. By that time, some Russian leasing companies had released their second or even third batch. Retail investors have begun to show increased interest in them.

Against the background of the expected increase in interest rates, leasing companies were in a hurry to place bonds. They borrowed money at a lower interest rate. But this still did not prevent them from raising enough funds with their debt securities.

❗ Leasing companies will issue bonds very often. The use of borrowed money is one of the pillars of their business. Therefore, in 2024 and in the future, investors will be able to invest money.

Promotions coming soon

In the spring of 2024, further development of interaction between leasing companies and individuals is expected. For example, the Europlan company, the first in its industry in the Russian Federation, is going to enter an IPO. The brand specializes in car leasing, which is called retail leasing. In fact, it has nothing to do with retail service.

In 2023, the leasing market in the Russian Federation reached RUB 3.59 trillion. The figure is 81% more 🆙 than last year. This is impressive even considering the low base. Even compared to the more stable 2021, the market grew by more than 57%.

The retail market increased in volume by 73%. Overall, the segment has been growing for the 5th year in a row. It is car leasing that takes up 66%.

In 2023, freight transport leasing increased by 100% compared to last year. For cars and buses the figure is slightly lower – 80%.

❗ Statistics say that 55% of leasing comes from small businesses, 28% from large businesses, 15% from medium businesses, and 1.8% from government businesses. The share of individuals is very modest – 0.2%. Mainly due to the need to pay VAT.

Overall, the industry has shown continuous growth for several years in a row. The record figures for 2024 are largely explained by:

📌 deferred demand in 2022;
📌 restructuring of the Russian economy.

Some experts note: the leasing market is ahead of the Russian economy. The most positive forecast for 2024 is an increase to RUB 4.03 trillion, which is 18% more than last year.

In other words, Europlan is the first sign. If the IPO of this company is successful, other players in the leasing sector will follow it to the stock exchange.

Investors, including retail ones, should start taking a closer look at the developing leasing market. Shares of companies like Europlan are unlikely to lose demand and potential. According to experts, the market will continue to grow ❗ until 2027, annually growing by 31% in passenger cars and by 25% in trucks.

In European countries, leasing accounts for up to 50% of all vehicle purchases in the business environment. In the Russian Federation this figure is much lower.

Direct investments

PCompanies are appearing that give investors the opportunity to directly invest in leasing agreements and promise fairly high returns that exceed the loan rate. For example, they borrow from investors from 12% to 15%, and issue cars at 18–20%.

Investments are offered for a period of up to 12 months. These are short-term and quite profitable investments. But the entry threshold is high – $5,000 and more. Anyone with less money can focus on bonds and stocks.