Leasing is a means of financing the use of capital equipment, the underlying principle being
that use is more important than ownership. It is a medium-term financial
arrangement, usually from one to ten years.
There are two main types of lease agreement: operating leases – short-term • finance leases
– long-term.
Importance of Lease Finance
1. Lease finance is easy to get than
getting loan for buying all fixed assets.
2. Monthly rent payment for lease finance will be operating expenses. It will be allowed to
deduct total income. So, company
can
get
tax
benefits in lease financing.
3. It can show as invisible debt of company out of its balance sheet. You can show lease
finance in the footnote of balance sheet,
if you did contract directly with the owner of asset.
4. One of major important point is that
it is more flexible way of finance. You can
fix your need
of
asset and get
it one lease through lease financing.
5. A study from IFC has revealed that 30% of total share of lease financing as investment of
fixed asset
is
of emerging and developed economies and now 15% of developing countries.