Lease financing is a modern method of medium to long-term businesses and individuals financing, for the acquisition of fixed assets, i.e. equipment and real estate for commercial use. It is defined as ”a contract between two parties, where one party (the lessor) provides to the second party (the lessee) an asset for use, for a specified period, at the cost of specific payments”.
The lessee leases from the leasing company the real estate or movable asset for a specific time period and in this context, he makes a regular number of payments (installments). At the end of this period and in accordance with the option, which constitutes an essential condition of the contract, the lessee can, by a unilateral statement, buy the leased asset at an agreed price, which is usually symbolic.
Leasing is an important and widely used source of financing. It enables natural persons and legal entities, from start-ups to multinationals, to acquire the right to use an asset without large initial cash outflows.
The use of leasing as a means of acquiring assets has increased dramatically in recent years, as companies realize their benefits. The most important of these are summarized as below:
- The lease is less capital intensive than the market, therefore a company with restrictions on its funds, can grow faster, by leasing and not by buying its assets.
- The value of the assets fluctuates constantly. The lease transfers the risk to the lessor.
- The payments of a leasing contract are considered as expenses and not as assets. Therefore they are not amortized and as expenses, they reduce taxable income.
- Leasing can offer flexibility, as the lessee has the ability to shape and refine the terms of the contract, in terms of both physical use and financing of the asset, but also because the lessee is usually not required to renew the lease at the end of its service.
Regarding future prospects of the leasing market, they seem positive, since the benefits that accrue to a company or person from the use of leasing virtually guarantee the development of this market in the coming years.