Finance Lease
What is a Finance Lease?
A finance lease is a long-term lease that allows you to use an asset for the majority of its useful life. This type of lease is similar to a loan in that you are responsible for maintaining the asset and making regular payments to the lessor. However, you do not own the asset and are typically required to return it at the end of the lease term. Finance leases are commonly used for assets such as vehicles, machinery, and large equipment.
Features of a Finance Lease.
- The lessee has the right to use the asset for the duration of the lease period, but ownership of the asset remains with the lessor. The lease agreement usually includes fixed monthly payments that cover the cost of the asset, plus interest charges. The lease period is typically longer than the useful life of the asset, so the lessee has the option to purchase the asset at the end of the lease period at a predetermined price. The lessee is responsible for maintenance and repairs during the lease period.
- The lessee has the right to use the asset for the duration of the lease period, but ownership of the asset remains with the lessor. The lease agreement usually includes fixed monthly payments that cover the cost of the asset, plus interest charges. The lease period is typically longer than the useful life of the asset, so the lessee has the option to purchase the asset at the end of the lease period at a predetermined price. The lessee is responsible for maintenance and repairs during the lease period.
- The lease period is typically longer than the useful life of the asset, so the lessee has the option to purchase the asset at the end of the lease period at a predetermined price.
- The lessee is responsible for maintenance and repairs during the lease period.
Benefits of a Finance Lease.
- Low initial outlay - Finance leases allow businesses to acquire assets without having to pay the full purchase price upfront. This can free up cash flow for other business expenses.
- Predictable monthly payments: The fixed monthly payments make it easy for businesses to budget and plan for the lease expense.
- Tax benefits: Lease payments may be tax-deductible as a business expense, which can reduce the overall tax liability for the lessee.
- Pay less - Rental cost is reduced as it is based on a percentage of the original capital cost
- Off balance sheet funding
