Financing #Rental: the purchase option is not so optional!

A few days ago, following our survey on #leasing on our Linkedin page, we started writing our first article in announcement of our future white paper on the subject.

Because yes, let's repeat it, anylease is not only an ultra-parametrical #SaaS solution for managing #leasing financing, it is also a unique support to boost your #leasing business , by a team specialized in the field.

Our first article, therefore, focused more on the points of convergence between #LOA and #LLD. We introduced the notion of #locative financing.

We invite you to read this article again by following the link.

We also stated what we consider to be the first major difference: the purchase option.

Financing #rental: the purchase option a big difference!

‍

As its name indicates, the #LOA allows its client (and even during the contract), to buy back the rented good for a value agreed upon in advance. This value is often quite low, 1, 3, 5 or even 15% maximum and much lower than the amount offered by the second-hand market.

The tenant becomes the owner of a property that he will be able to resell, when he wishes, at a value allowing him to make a significant capital gain. This is obviously the reason why the majority of #LOA contracts see the purchase option exercised, with transfer of ownership from the #leaser to the lessee. This mechanism is often perceived as a good deal. From this point of view the option is not so optional.

‍

In leasing, no purchase option

‍

Long-term leasing does not offer the option to purchase. Of course, it is possible to buy back the leased asset from the lessor at the end of the contract, but the value offered is not agreed upon in advance and may be quite high. In fact, it corresponds to the market value estimated at the beginning, increased by possible additional capital gains targeted by the lessor. As the latter is looking forthe best resale, this additional value can represent several thousands of euros. This is particularly the case at the moment, in a context of crisis where the manufacturing delays are so long that they pull the second-hand market upwards.

One may be surprised by the values proposed, but they constitute the largest part of the margins made by the rental companies and also compensate for the losses they may incur on certain products.

‍

2 financial approaches for very different residual values

‍

The #LOAis based on low theoretical values (1, 3, 5 or 15% as mentioned above) which make this type of financing comparable to aclassic#credit. From this point of view, the legislator has not been mistaken since the operators of #LOA are subject to a regulation like those of the credit organizations.

The #LLD, on the other hand, is based on much higher economic values of use where the lessor will try to make the best added value. On the other hand, the system will offer the client a cheaper rent that only finances a part of the asset: the use value. On the other hand, the regulations are much more flexible for the actors.

‍

LOA or LLD the best of the systems is...

Each system has its advantages and disadvantages.

Both belong to the lease financing.

For the client, the choice will obviously be more readily made for the #LOA if the objective is to retain the possibility of acquiring the property at the end. If the objective is to optimize the cost of the rents by financing the use without final acquisition, the #LLD will be preferred. The #LLD also offers its client the advantage of not having to deal with the resale of the property and its numerous administrative tasks.

For the company that wishes to develop a rental financing offer, the #LOAis technically easier to deploy. On the other hand, it will be strongly constrained by regulations. Not everyone is a banking institution!

Companies wishing to develop an LLD offer will benefit from an easier regulatory context but will have to understand many technical and business aspects (evaluation of residual values, constitution of depreciation tables, calculation rules, integration and treatment of specific processes).

In any case and you will have understood, whether you are a client or a provider, the #LOA or the #LLD is a management choice.

This last point allows us to announce our next article: LLD or LOA a choice of management.

Feel free to share this article if you liked it, and contact us if you want to learn more about how anylease can help you boost your #leasing business.

contact@anylease.io

+33 1 81 801 522

‍

‍

‍