Leasing is a contract between two parties where one party (the lessor) provides an asset (purchased from a supplier) to another party (the lessee) for a specified period of time, in return for specified payments. Leasing focuses on the lessee’s ability to generate cash from the use of leased assets to make the lease payments.
Leasing is a method of payment for the use of equipment such as a car, truck, or any manufactured instrument, over a specified period of time. Although similar to renting, leasing is quite different. While you can rent a car for a day or for a few hours, leasing is typically for 24 months and does not usually make provision for easy termination of contract or vehicle swapping.
Benefits
Advantages of leasing include:
- Security – the lessor already owns the assets and so may require little or no additional collateral
- Coverage – leasing can provide up to 100 percent of financing needs
- Affordability - after adding collateral, processing time, and fees, leasing is often cheaper than bank credit
- Availability - Leasing is often the only source of medium- to long-term financing for small and medium enterprises
- Flexibility – the pattern and size of lease payments can be tailored to specific needs
