This is another form of financing through a credit line, which consists of flexible loan banking very short-term oriented. Leasing is a financing system to which the company can use when not intends to affect large amounts of capital to have access to a particular asset.
In the leasing contract the asset owner (lesser) allows the user (the lessee) to dispose of the asset in exchange for benefits (interests). At the end of the contract, the lesser may purchase the asset by paying a predetermined residual value. This allows the company to ensure a better liquidity as the asset payments are deferred. However, it has the disadvantage of not owning the asset and in the event of an accident arise the lessee will have to compensate the lesser.
- Allows full funding in medium to long term
- Is a simple process and a quick way of raising financing
- Improves balance sheet structure of the leasing company
- The company has possibility to avoid obsolescence of equipment
- Can be expensive
- The asset belongs to the financing company (lesser)
- Case study about leasing – http://www.bizfilings.com/toolkit/sbg/office-hr/vehicles-equipment/equipment-leasing-purchasing.aspx