Leasing

• Overall


  this is when a business pays another organisation to use their equipment or no current assets

  Avoid having to purchase necessary equipment outright, use large capital outlay
• Types of leases


  Operating lease = for assets that are leased for a short period of time, shorter than life of asset. Owner carries out maintenance, can be cancelled without penalty

  Financial lease = leased for the life of the asset (long period of time) lease repayments are fixed for the economic life of the asset usually 3 - 5 years. There are usually higher penalties for cancellations

  Leasing assets as financial leases for financial lease is cheaper than leasing on operating leases
• + and -


  + better for cash flow and working capital

  + fixed payments → easier for the business to manage

  + no added fees for maintenance and insurance

  -higher payments and interest rates than other forms of borrowing

  -Regular payments to the business they are purchasing from