## Lease Financing
### What is a Lease?
A lease is a contract where:
- Lessor (owner) allows
- Lessee (user) to use an asset for a fixed rent and period.
The lessor buys the asset; the lessee uses it and pays rent.
### Why use Leasing?
- Fast access to assets without upfront purchase funds
- No need to raise loans or deploy own capital
### Core Types
| Type | Key Features |
|---|---|
| Operating Lease | Short-term; cancelable; ownership + maintenance stays with lessor; partial cost recovery |
| Financial Lease | Long-term; non-cancelable; lessee bears maintenance; full cost + interest recovered |
### Detailed Comparison
| Point | Financial Lease | Operating Lease |
|---|---|---|
| Risk & Rewards | With lessee | With lessor |
| Cancellation | Non-cancellable | Cancelable |
| Maintenance | Lessee bears costs | Lessor bears costs |
| Lease Rent Recovery | Full cost + interest | May be partial |
| Asset Use Period | Almost full useful life | Short period |
### Other Lease Types
| Type | Explanation |
|---|---|
| Sale and Leaseback | Asset sold and leased back → original owner becomes lessee |
| Leveraged Lease | Lessor borrows 80–90% of asset cost from a third-party lender |
| Sales-Aid Lease | Lessor ties up with manufacturer to promote leasing of their product |
| Close-Ended Lease | Lessee returns asset at end → residual value risk with lessor |
| Open-Ended Lease | Lessee may buy asset at end of lease term |
### Tax Implications
| Option | Tax Treatment |
|---|---|
| Lessee (Lease) | Rent is fully deductible; cannot claim depreciation |
| Buyer (Own) | Can claim depreciation + interest on loan |