When you run a business, there are times when you need to make a purchase but may lack the funds to do so. Typically, you may consider a loan with your bank. However, there may be other options, such as a finance lease. As a business owner, it is helpful to understand the options open to you so that you can make the best financial decision for your circumstances. Therefore, this article will explain what a finance lease is and the benefits of this agreement.<\/p>\n\n\n\n
To better understand a finance lease, it is helpful to think about what a lease is in legal terms. <\/p>\n\n\n\n
A lease is where a person or entity, the lessor, gives another, the lessee, the right to use an asset. The lessee has the right to use the asset, but the legal ownership remains with the lessor.<\/p>\n<\/div>\n\n\n\n
A finance lease also takes on the same legal meaning as a lease. However, it also has a commercial element, as a finance lease is a way to provide finance to another. Therefore, the lessor, such as a finance company, buys the fixed asset and lends it or leases it to the lessee or borrower during the lease term.<\/p>\n\n\n\n
A fixed asset means an asset that is permanent and can generate revenue, such as:<\/p>\n\n\n\n
With a finance lease, you, as the lessee, have \u2018economic\u2019 ownership of the asset during the lease agreement period. Accordingly, as the lessee, you bear any risks associated with the asset in line with the lease agreement terms. However, equally, you enjoy any rewards from the asset. This includes the ability to list the asset on your balance sheet as an asset with any remaining payments as a liability.<\/p>\n\n\n\n
Some other terms used relating to finance leases are;<\/p>\n\n\n\n