Leasing is a popular form of equipment finance that enables businesses to access equipment and vehicles.
Leasing commonly applies to goods such as vehicles, office equipment and machinery. Under a lease agreement, the financier grants the lease (the “lessor”) and is the owner of the goods until a final payment, called a Residual Value, is paid.
The entity that acquires the goods under the lease (the “lessee”) may use them for a specified period, in return for a series of payments. At the end of the lease, the lessee can either pay the residual value (final instalment) on the lease and take ownership of the goods or re-finance the residual and continue the lease.
The lease can be for any period of time, typically from two up to 5 years, although with some assets like buses and aircraft, this can be much longer. A lease liability must be reported on the lessee’s balance sheet.