Furniture leasing

economic-dictionary

Furniture leasing is a financing tool that allows companies to acquire personal property. Thus, in exchange for a right of use, the firm pays a periodic fee, by way of rent, for a specified period. Then, once the contract period is over, the lessee can pay a residual value and buy the asset.

In other words, through this type of leasing, the company acquires the right to use a movable property, for example, a machinery or vehicle, for a specified period of time. As consideration, you make a periodic payment to the landlord.

This type of arrangement is then an alternative to working capital credit.

Characteristics of furniture leasing

The characteristics of furniture leasing are mainly the following:

  • In some countries there is a minimum term. For example, in Spain the minimum term of the contract is two years.
  • It is useful if the company does not have sufficient capital or liquidity for the purchase of a certain equipment that it requires for its operations.
  • The duration of the contract is usually medium-term, between two and five years.
  • The leasing period should be equal to or less than the useful life of the leased personal property. Otherwise, the company would continue to pay for the use of an already worn-out asset.

Differences with real estate leasing

Unlike what happens with real estate leasing, in furniture leasing the purchase option is not so relevant. This, because the asset may have already depreciated enough at the end of the lease period.

To understand it better, let's imagine that a company acquires the right to use machinery by signing a furniture lease for five years. However, the asset in question has a useful life of six years.

Therefore, at the end of the contract, the machinery will have been depreciated by wear and tear almost entirely, and the firm will probably not be interested in its purchase.

Tags:  history USA markets 

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