Non-Bank Financial Intermediaries, Credit Entities and Equipment Leasing vs. Renting

Nonbank Financial Intermediaries

Nonbank financial intermediaries are not passive entities that accept payments. They mediate and indirectly finance assets, generating relatively little risk and returns for borrowers.

Credit Financial Establishments

Credit entities are companies that carry out the following activities: credit loans, factoring, leasing, card issuing and management, and the granting of guarantees and warranties.

These establishments must include in their corporate name the word "establishment" and the abbreviation "EFC". They must meet the following obligations:

1. Cover the legal minimum capital coefficient (the solvency requirement applicable to them).
2. Maintain a minimum guarantee of own resources.
3. Provide information as required.
4. Comply with client-related standards, especially regarding transparency and commissions charged.
5. Have their creation authorized and be registered with the Ministry of Economy.

Note: Uptaking deposits and granting loans, asset transfers, and similar activities are prohibited for these entities.

Rental Entities

Rental companies offer nonfinancial rental of durable goods, especially industrial equipment, vehicles, and electronic or IT systems, security equipment, and office equipment, among others. There is no purchase option, although one may be agreed. They are not subject to a specific legal regulation, so they are governed by the conditions of the rental contract itself.

Elements of the Rental Contract

a) Personal Elements

1. Lessor: the rental company, which makes equipment available to the lessee for use during the agreed term, and carries out maintenance and management operations related to the leased goods.
2. Lessee: the person who rents the goods, pays a fixed monthly rent, and obtains the right to enjoy the leased goods during the agreed term. At the end, the lessee must return the goods unless a purchase option was agreed.
3. Manufacturer: provides the goods subject to the rental, and ensures the rental lasts under safe conditions.

b) Material Elements

• The good: must be appropriable and not be outside commerce, being either a consumer or durable good, or furniture.
• Price: depends on the duration of the contract and includes all costs included in the monthly fee paid by the user, such as depreciation expenses, technical assistance, and insurance.

c) Formal Elements

1. Commercial rental contract and maintenance annexes.
2. Guarantees required of the client, depending on payment capacity. In case of default, the lessor assumes the risk.
3. No cost or opening fee for the intervention of the broker.

Classes of Rental

1. Automotive rental: the duration of the contract is 2 to 5 years. Upon completion, the vehicle is returned or the lessee may purchase it or make other use of it. Contracts are renewed for each set number of kilometers, and vehicles are replaced with used or new ones.
2. Equipment rental: maximum duration of 5 years. At expiry, the lessee may choose to notify the renewal of the contract or replace the equipment with new ones. Typical goods include telecommunications equipment, computers, copiers, and similar items.

Differences Between Leasing and Renting

1. In leasing, the lessee takes on the security, maintenance, and incidents; in renting, the company holds all these responsibilities.
2. Leasing is a specialized activity, while renting is more general.
3. In leasing, the payment includes amortization and interest, while in renting the cost covers the use of the equipment, insurance, and maintenance.
4. In leasing, the payment is stable and not dependent on the use of the goods, while in renting it may vary according to use.
5. In leasing, the minimum term for real estate is 2 to 10 years; renting has no minimum term.
6. In leasing, at the end of the contract the lessee may exercise the purchase option, renew, or return the asset; in renting, there is no purchase option unless otherwise agreed, and the company recovers the goods.
7. In leasing, early cancellation is penalized; in renting, this only applies in certain cases such as vehicles.
8. Leasing is marketed as a financial instrument, while renting is marketed as a service that meets the needs of customers.