An Introduction To Leasing
Leasing is a financial agreement whereby a lessor conveys to a lessee, in return for a payment or series of payments, the right to use an asset for an agreed period of time. Leases are broadly catagorised into two types, ‘Operating’ and ‘Finance’ Leases.
The first offers a package of direct benefits to the client that ensure the adequacy and sufficiency of the leased asset, where the client does not bare any responsibility of liquidating depreciated or out dated assets. In addition, clients are able to reduce their development cost to great extent.
Financing Lease or lease-to-own provides these benefits but adds the possession of the asset, which makes this option a good alternative to traditional financing due to many reasons. Of particular importance to this financing option is the fact that installments are not regarded as debt. Therefore, future installments are not required should the leased asset be damaged beyond repair or stolen.
Consistent with prevailing market situations and adaptive to customer need, leasing is not merely a matter of regular payment for use of equipment. The concept has been developed to provide a financing option that takes into account the residual value of an asset at the end of a specified term, enabling a client to only pay for the benefits received rather than absorbing the write-off value at end of term. This allows better use of working capital and higher balance-sheet liquidity.