Leasing

Leasing comes in one of two forms: Financial Leasing and Operational Leasing.

In the former, the SME essentially accepts the risks and rewards of using the asset that will appear on his balance sheet. The SME generally pays for the entire cost of the asset plus a finance charge over the life of the lease. In substance there is little difference between a financial lease and taking out a bank loan and purchasing the asset – although the tax differences can be significant.

Under operating leases, the SME has the option to terminate the service early so that in effect the leasing company is primarily accepting the risks and rewards of ownership Operating leases offer flexibility and easy financing for SMEs, but can prove expensive in the long-term.

See Hire Purchase for another form of raising finance not that dissimilar to leasing.

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