Asset leasing gives businesses the option of borrowing an asset for a fixed period, rather than having to buy it outright. Because you do not need to pay for a new piece of equipment outright, leasing overcomes cash flow implications.
The fundamental characteristic of leasing is that the ownership never actually passes on to the customer.
By having a leasing agreement contract a business is allowed to use equipment in exchange for regular payments. Finance lease and operating lease are the two accounting methods for leasing equipment and are used for different purposes.
Finance lease works by customers renting an asset for most of the item’s useful life. The customer takes on most of the risks and rewards of ownership, such as the maintenance costs or the fluctuations in value. However, you do not actually own the asset.
It consists of a primary rental period where the monthly payments add up to the full cost of the asset plus interest.
Once the primary period is up, the asset will normally be near the end of its useful life and you will have three options:
Business loans may be taken out for several reasons such as the need to maintain business operations, invest in equipment, or other manners to advocate growth. They are both beneficial for businesses and usually easy to obtain due to the multitude of lenders.
6 Key Reasons Why Asset Finance Can Help Your Business