Question

Write a short note on Lease financing.

Answer 1

Lease financing denotes procurement of assets through the lease. For many small and medium enterprises, acquisition of plant and equipment and other permanent assets will be difficult in the initial stages. In such a situation Leasing is helping them to a greater extent.

Leasing here refers to the owning of an asset by any individual or a corporate body that will be given for use to another needy business enterprise on a rental basis. The firm which owns the asset is called ‘Lessor’ and the business enterprise which hires the asset is called ‘Lessee’.

The contract is called ‘Lease’. The lessee pays a fixed rent on an agreed basis to the lessor for the use of the asset. The terms and conditions like lease period, rent fixed, mode of payment, and allocation of maintenance, are mentioned in the lease contract.

At the end of the lease period, the asset goes back to the lessor. Alternatively, the lessee can own the asset taken on lease by paying the balance of the price of the asset concerned to the lessor. Hence lease finance is a popular method of medium-term business finance.