Why do Companies opt for the Leasing Model?

Every company requires Fixed Assets to operate their business. Fixed Assets can be categorized broadly into 2 types:

1. Assets bought one time / only once in a couple of years. These assets include buildings, plants, heavy machinery, etc.
2. Assets bought regularly - Some are general (and not related to the core business) such as laptops, furniture, IT equipment etc. and others are specific (related to the core business) such as batteries, water purifiers, IoT devices, etc. 

Funds utilized to acquire assets singularly (at a single point in time) are termed “Capital Expenditure.” If a Company acquires assets regularly, these are classified as “Rolling Capital Expenditure.”

Companies can finance their Capital Expenditure requirements using traditional financial institutions such as Banks and NBFCs but many of these same institutions do not entertain Rolling Capital Expenditure requirements. This is because most of the time, these asset are not recognized by these financial institutions. 

As a result, companies look for alternative routes to finance their Rolling Capital Expenditure requirements, and this is where leasing fits in perfectly.

Leasing enables companies to utilize the asset without paying in full, upfront, for them. The Company has to pay rent regularly until the term of the Lease is up.  

There are 2 outcomes as to what happens to the asset after the term of the Lease is up:

1. The owner takes the asset back from the company
2. The owner sells the asset to the company 

In case of asset leasing on the Tap Invest platform, Tap Invest buys the asset from the Investor/Owner at a pre-determined price called the buyback value.

For any additional queries, feel free to e-mail us at the following e-mail address: support@tapinvest.in