Lease financing

Lease financing

In general, there are two types of commercial leasing:

1. Financial lease
2. Operational lease

With a financial lease, the lessee becomes the legal owner of an asset after the contract period, whereas with operational lease, the assets will be returned to the lessor.

Product-as-a-service as an enabler of the Circular Economy

Operational product lease, also referred to as Product-as-a-Service (PaaS) can be considered a new business model that supports circular economy. Product leasing is a service compensation model in which the customer pays for the utilisation of the product over an agreed period. In this period, the customer will not own the product. Instead, the manufacturer holds the ownership of the product and is responsible for its delivery, maintenance, and take-back. Product leasing stimulates that products will be designed and maintained in a way that sustains their initial level of performance for as long as possible. This also extends the product’s life and reduces resource use. After the return of a product, it can be refurbished or remanufactured, after which it can be offered under a new life lease. Learn more about (business) models that support circular design and optimal use.

Lease service suppliers

Under both leasing models, the initial investments that manufacturers incur to produce the products are not compensated directly or on a short term by the customer. Generally, they are compensated on a much longer term through small instalments. Therefore, special forms of financing is often required. Financial institutions that offer financing for lease service are e.g. DLL , Belfius Lease , BNP Paribas Leasing Solutions . By providing funding for the asset’s investment costs, lease service suppliers enable the manufacturer to offer a lease contract to its customer against a periodic payoff (financial lease) or rent (operational lease).

• Watch this short video prepared by BNP Paribas Leasing Solutions that explains how the service they offer contributes to a circular economy.
• DLL’s whitepaper tells more on how this leasing business model fits into your company.