Leases are classified in different ways. “Real leases,” which are at the heart of this chapter, are traditional leases that are deemed to be the landlord`s right to the lease assets. The user of the asset, the lessor, does not have a stake in the asset. Operating leases and different types of finance or leasing contracts are sub-categories of actual leases. In a loan-financed lease, long-term money is made available to the lessor by lenders on a non-recursive basis; in other words, in the event of a default, lenders cannot go to the lessor to pay off the debts. Normally, the lender receives mortgages secured by: Keep in mind that a loan-financed lease is usually covered by a secured loan. This means that the lessor can withdraw the asset if it stops paying. The raised aspect of a loan-financed lease includes borrowing funds to pay for the high cost of the asset value. A loan-financed lease is generally used when an entity cannot afford to buy the asset directly and does not necessarily want to retain the assets over the long term. A loan-financed lease allows a buyer to obtain a loan for the value of the assets leased during the term of the lease and to repay the loan over the term of the lease. The amount required for the loan may be less than the direct purchase of the asset, since the underwriter only pays for a certain value related to the duration of the lease.
The sale and lease is made when an entity sells an asset to another entity and immediately leases it for its own use. In this transaction, the lessor usually pays a price close to the fair value of the asset. Rents are set at a level that returns the full purchase price of the asset to the lessor and provides a reasonable return. The sale and rental are advantageous to the taker for the following reasons: The lessor can also work with a third-party lender. In this case, the third-party lender makes the borrowed funds available to the lessor on your behalf so that you can take possession of the assets as soon as a loan is approved. In some cases, a lessor may raise certain funds in combination with funds borrowed from a third party, which can help improve the terms and conditions of the lease. A large portion of all financing leases currently written in the United States are loan-financed leasing contracts. Also known as loan leasing and tax leasing, debt-financing leases are designed to finance assets that require significant capital charges (usually over $300,000) and have an economic life of five years or more.
Leveraged facilities are generally tax-motivated because the asset manager (Leswiederum) is not in a tax position where he can use accelerated depreciation shields when the asset is in possession and not in leasing. Leveraged leases are more complex than a basic operating lease-sale contract, as leverage is at issue. The structure of leverage lease terms depends on the owner and his financing relationships.