Finance Leases

Finance leases are the most-standard type of lease financing provided by SMFL for the machinery and equipment that customers select.

About Finance Leases
Outline of the Transactions
Principal Leased Items

About Finance Leases

When customers introduce machinery and equipment from manufacturers or dealers handling these items, SMFL purchases these items on behalf of the customers and then leases these to the customer. Lease rents paid during the term of the lease agreement are generally the sum of the purchase cost of the item, payments for interest incurred during the term of the lease, fixed asset taxes on the item, and the insurance premiun on the items.

Comparison of Lease, Rental, and Installment sales Arrangements

The following table presents a comparison by principal characteristics of lease, rental, and installment sales.

	Leases	Rental	Installment sales
Applicable items	All types of machinery and equipment	Specific types of general-purpose machinery (such as PCs, measuring equipment, and construction machinery)	All types of machinery and equipment as well as real estate
Method of choosing the items	Customers are free to choose the items they want.	Chosen from the inventory of the rental company	Customers are free to choose the items they want.
Term	Relatively long term (usually three to seven years)	Short term (by the hour, day, or month but usually up to one year)	Usually up to five years
Ownership of the item	Leasing company	Rental company	Customer (However, ownership remains with the seller until all payments are completed.)
Depreciation	Leasing company	Rental company	Customers
Treatment of expenses or losses	In principle, the leasing company pays	Full amount of the rental fees	Depreciation and interest are deductible by the customer
Inventories	None are held	Always have some level of inventories	None are held
Responsibility for the maintenance	Customer (in the case of maintenance leases, the leasing company)	Rental company	Customer
Cancellations prior to expiration of the contract	Not allowed	Allowed	Not allowed
Rents	In general, less than for rentals. After completion of the basic lease period, fees are reduced substantially.	Higher than for leasing	The total amount of the cost of the item and interest divided by the number of months
Treatment of the item after completion of the arrangement	Returned to the leasing company or continued usage under a re-leasing agreement	Returned to the rental company	Ownership transfers to the customer