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There are some factors and variables, both qualitative and quantitative, that affects a person or firm’s decision either to buy or lease an asset. It is imperative as a lessee (user of an asset) to critically analyse these issues to arrive at a better decision. The following are some of the qualitative factors that imply an obvious advantage of leasing over buying an asset. (1)       Flexibility and convenience:  due to the nature of leasing, lessors (owner of an asset)…

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Leasing is similar to other forms of equipment financing. However, it has distinct nature from the other methods. i. Hire Purchase – the assets are delivered to a person who agrees to make periodical payments by way of hire with an option to purchase. There are two transactions i.e. Hire and purchase combined into one. A lease is technically a hire contract without more. So when a lease contract gives the lessee an option to purchase, it takes the transaction…

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Just like there are advantages of leasing to a lessee (the user of an asset), so are there benefits of leasing to a lessor (owner of an asset).  The factors that encourage a lessor to provide leasing facilities include: Leasing widens the market for a manufacturer/dealer of equipment. Thus, a manufacturer/dealer can offer lease arrangement without necessarily investing additional capital. Lease rental income received periodically is easily predicted on which future cash flow projections can be made for planning…

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Lease structuring is done after the lessor has established the risk profile of a particular transaction. Sometimes the lessor might not be sufficiently certain that the lessee will meet his rentals as they fall due. To overcome this uncertainty, it may be necessary to require some form of credit enhancement. However, credit enhancement should not be the reason for entering into a lease with what otherwise would be unsatisfactory lessee. The following techniques are used to compensate for increased…

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