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Financial Lease

A finance lease is a lease that is primarily a method of raising finance to pay for assets, rather than a genuine rental, the latter is an operating lease and the key difference between a finance lease and an operating lease is whether the lessor (the legal owner who rents out the assets) or lessee (who uses the asset) takes on the risks of ownership of the leased assets. The classification of a lease (as an operating or finance lease) also affects how it is reported in the accounts.

From an accounting point of view the classification of leases as finance leases is very important. With a finance lease assets must be shown on the balance sheet of the lessee, with the amounts due on the lease also shown on the balance sheet as liabilities. This is intended to prevent the use of lease finance to keep the lease liabilities off-balance sheet.

Types of Leases:

While leasing companies may use the same name to describe a lease, the terms and conditions written in their contracts often vary. Be certain to review your documents carefully and ask your leasing company to explain anything that is unclear.

  • True Lease or Operating Lease

  • Finance Lease or Capital Lease

  • Skip Lease

  • Sale Leaseback

  • 60 or 90-Day Deferred Lease

  • Master Lease

  • Government Lease

  • Structured Lease

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