Leasing 102
A Deep Dive Into The Different Lease Types
Did you know that 50% of business now prefer leasing over buying to stay agile and tech-forward?
Leasing has become the go-to strategy for businesses looking to access high-value assets with flexibility, without the burden of hefty costs and ownership risks. In our previous blog Leasing 101, we explored the fundamentals of leasing, a $2 trillion global industry that enables businesses to access assets without ownership.
Today, we’re diving deeper into the different types of leasing to help you find the best fit for your business.
Major Types of Leasing
1. Financial Lease
A financial or capital lease is a long-term leasing agreement between the lessee (tenant) and the lessor in which the lessee essentially assumes ownership-like responsibilities for the asset. The lease usually covers most of the asset's useful life, and the lessee often has the option to purchase the asset at the end of the term.
Common Use Cases – Heavy machinery, vehicles, and office equipment
2. Operating Lease
An operating lease is a short-term rental agreement where the lessor (owner) retains the ownership of the asset and the lessee is able to use the asset without any ownership risks. An operating lease offers flexibility and is suitable for assets that require frequent upgrades.
Common Use Cases – Office spaces, computers, and technology equipment in companies
3. Sale and Leaseback
The Sale and Leaseback lease allows businesses to sell their assets to a leasing company and then lease them back from them for their continued use. This lease is best suitable for firms that aim to have financial liquidity while retaining operational control over the asset.
Common Use Cases – Medical equipment, office buildings, aircraft
4. Tax-Oriented Lease (True Lease)
The tax-oriented lease is structured to provide tax benefits to the lessor while the lessee will get to keep the asset. The lessor claims depreciation benefits which allows them to offer the asset at a lower lease to the lessee.
Common Use Cases - Industrial equipment, IT hardware, and commercial vehicles.
5. Software Leasing
Software leasing provides businesses with subscription-based access to premium software without the burden of large upfront costs. This type of leasing ensures flexibility, predictable payments, and hassle-free license management. With Swish Club’s Software Leasing, you can now get enterprise software like SAP and AWS at flexible leasing models for your enterprise.
Common Use Cases – Enterprise Software, design tools and cybersecurity solutions
- Commercial Leasing
Fundamentally, there are three main types of commercial leases in India differentiated based upon the level of responsibility a tenant takes on. These are –
- Gross Lease – Also known as a full-service rental agreement, under this commercial lease agreement the lessor takes care of all the expenses and costs of the asset including but not limited to taxes, licensing, and maintenance while the lessee solely focuses on their business operations.
- Net Lease – This type of lease requires the lessee to cover operating costs, such as taxes, insurance, and maintenance of the leased asset. This lease allows the lessor to earn a passive income, however, it can potentially pose financial challenges for the lessee, especially if unexpected costs arise.
- Modified Gross Lease – This type of lease is very similar to a gross lease with some distinctions, allowing for specific terms for different expenses. The lessor ideally has greater flexibility and control over their expenses under this lease agreement.
Conclusion
Choosing the right lease is critical for financial planning and business efficiency. Whether you need a long-term asset, flexibility, or a sale and leaseback model for liquidity, there's a leasing option that fits.
Swish Club offers everything from Corporate Device Leasing to Software Leasing, tailored for your business needs.
Get in touch with our experts today and unlock cost-effective, flexible leasing solutions designed to accelerate your business growth!
