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Lease financing medium and long term operating lease

One of the important sources of medium and long term financing where the owner of an asset gives another person the right to use that asset against periodical payments is Leasing Financing.

A finance lease is a method of financing assets where they remain the property of the finance company that hires them and the lessee pays for the hire of the asset or assets.

There are different benefits of a finance lease agreement such as Set regular payments, Minimal cost upfront, Rentals are usually Corporation Tax deductible,Potential to carry on using the asset at the end of the lease period and also additional line of finance that may not affect core banking arrangements.

So how does a finance lease work?

The lessor charges a rent as their reward for hiring the asset to the lessee then a finance lease transfers substantially all of the risks and rewards of ownership of the asset to the lessee. Finance leases are either fully amortizing to a balloon rental. At the end of the lease term, the lessee may be offered a lease on the asset for a secondary period at anything between a nominal rental and a commercial rent

The Advantages of Lease financing are:

Assured Regular Income, Preservation of Ownership, Advertisement, Benefit of Tax, High Profitability, High Potentiality of Growth, Recovery of Investment, Use of Capital Goods, Tax Benefits, Cheaper, Technical Assistance, Inflation Friendly, Ownership.

You may be given the opportunity to extend the lease or to return the asset to the finance company at the end of the finance lease contract. This is dependent on the terms of the agreement, but in most cases you’ll find that at the end of the primary lease period you will have the option to extend your lease.


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