1. Lease Financing

2. Meaning
Leasing is an arrangement that provides a firm with the use of and control over the assets without buying and owing the same. It is a form of renting assets. Lease is a contract between the owner of the asset(lessor) and the user of the asset called the lesse, wherby the lessor gives the right to use the asset to the lessee over an agreed period of time for a consideration called the lease rental.

3. Types of Leasing
Operating or Service Lease
Financial Lease

4. Operating Lease It is a short term lease on a period to period basis.
The lease is usually cancellable at short notice by the lessee.
The lessee usually has the option of renewing the lease after the expiry of lease period.
The lessor is generally responsible for maintenance, insurance and taxes of the asset.

5. Financial Lease
A lease is classified as finacial lease if it ensures the lessor for amortisation of the entire cost of investment plus the expected return on the capital outlay during the term of the lease. A financial lease is for longer period of time. A financial lease usually provides the lease an option of renewing the lease for further period at a nominal rent. It is usually non cancellable by the lesse prior to its expiration date.

6. Advantages of leasing to the Lessee
Avoidance of Initial Cash Outlay
Minimum Delay
Easy Source of Finance
Shifting the Risk of Obsolesence
Enhanced Liquidity
Conserving Borrowing Capacity
Tax Planning and Differential Tax Advantage
Higher Return on Capital Employed
Convenience and Flexilbility
Certainity
No Floatation Cost
No Disposal Problem
Lesser Administrative Costs

7. Limitations of Leasing for the Lessee
Loss of Moatorium Period
Risk of Being Deprived of the Use of Asset
No Alteration of Change in Asset
Loss of Ownership Incentives
Penalties on Termination of Lease
Loss of Salvage Value of the Asset

8. Advantages of Leasing to the Lessor
Higher Profits
Tax Benefits
Quick Returns
Increased Sales

9. Limitations for the Lessor
Higher Profits
Risk of obselence
Competitive Market
Price Level Changes
Management of Cash Flows
Increased Cost due to Loss of User Benefits
Long Term Investment