Advantages of Leasing

Question 1

What are the advantages of leasing to the lessee?

Answer 1

• Secured against the asset so reduces need for additional collateral
• Lend cannot be recalled
• Asset can be obtained directly from specialist providers or indirectly through equipment suppliers or finance brokers
• Flexibility to update or replace equipment - Exchange clauses
• Widely available through network of 5000 equipment dealers and 400 brokers
• Fixed rental - not adjusted because of interest rate changes
• Payments can be tailored to cash flow - seasonal cash flows

Question 2

Comparison with a loan or overdraft

Answer 2

overdraft can be removed on demand by a bank (if amount exceeded or expires)
Overdraft useful for short term working capital but can be expensive form of borrowing
Asset finance more medium term lending
Asset finance the lease repayments can be met from the income generated
Simpler process than applying for a loan
Could offer a blend to the client

Question 3

What are the advantages for the lessor?

Answer 3

Owning the asset may be preferable rather than taking security on say land and buildings, which can be expensive to arrange
Profit margins can be greater than any other forms of finance
Vendor leasing can boost sales