New sale-leaseback finance leasing is mainly used when our customers commence new projects, expand production, upgrade their technology and have financial demands to purchase new equipment in a short period of time and would need to acquire the asset as soon as possible. We fund our new sale-leaseback transactions primarily through our own capital, bank borrowings and shareholders’ loan.
1. The customer will purchase specific asset directly from the equipment supplier with their own funds first and we (as lessor) will subsequently purchase the equipment from our customer.
2. We will purchase the asset from our customer typically at 60% to 90% of the purchase price paid to the equipment supplier and then we (the lessor) will lease the equipment back to our customer (the lessee) for its use in return for periodic lease payments paid by the customer to us.
3. The lessee also pays us a security deposit at the time of our purchase, which typically ranges from 5% to 15% of the original purchase price. In some cases, the equipment supplier also pays us a security deposit at the time of the purchase, which typically ranges from 10% to 20% of the purchase price.
4. Usually in two to three years, or in some cases on longer terms, the lessee repays the financing provided by us, along with interest and other fees to us.
5. At the end of the lease term, the ownership of the assets will be transferred to the lessee.
The following diagram illustrates the relationship among the three parties:
