Asset Finance – Finance Leasing

There are many various different types of asset finance that you need to be aware of.

Finance Leasing

This comes closest to the hire purchase option of asset financing withone major difference – the ownership of the asset doesn’t gettransferred to the business customer at any point of leasing period.

In this arrangement the customer pays the full cost of the equipment,plus the charges in the form of lease rentals over the period of thelease. The customer also gets to bear risks and enjoy benefits usuallyassociated with the ownership without actually owning the asset – hemust bear the maintenance and insurance cost of the asset and will haveto treat the asset as a capital asset in the balance sheet.

At the end of the lease term, usually the asset in question is re-leasedto the customer at much reduced payments or is sold second-hand to anunrelated third party.

Operating Leasing

While the term for a finance lease is long, an operating leasing is usually resorted to if the need of equipment is for a shorter period.Here the full cost of the equipment is not recovered and at the end of the lease term, usually the equipment is leased to some other customer or is sold second-hand.

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This entry was posted on Saturday, June 6th, 2009 at 7:15 am and is filed under Finance Matters. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.

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