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Advantages of Leasing

Advantages of Leasing

Leasing finance is one of the modern sources of finance, which plays a major role in the part of the asset based financing of the company. It has the following important advantages.

[Post Image Courtesy of StockImages at FreeDigitalPhotos.net]

1. Financing of fixed asset

Lease finance helps to mobilize finance for large investment in land and building, plant and machinery and other fixed equipments, which are used in the business concern.

2. Assets based finance

Leasing provides finance facilities to procure assets and equipments for the company. Hence, it plays a important and additional source of finance.

3. Convenient

Leasing finance is convenient to the use of fixed assets without purchasing. This type of finance is suitable where the company uses the assets only for a particular period or particular purpose. The company need not spend or invest huge amount for the acquiring of the assets or fixed equipments.

4. Low rate of interest

Lease rent is fixed by the lease agreement and it is based on the assets which are used by the business concern. Lease rent may be less when compared to the rate of interest payable to the fixed interest leasing finance like debt or loan finance.

5. Simplicity

Lease formalities and arrangement of lease finance facilities are very simple and easy. If the leaser agrees to use the assets or fixed equipments by the lessee, the leasing arrangement is mostly finished.

6. Transaction cost

When the company mobilizes finance through debt or equity, they have to pay some amount as transaction cost. But in case of leasing finance, transaction cost or floating cost is very less when compared to other sources of finance.

7. Reduce risk

Leasing finance reduces the financial risk of the lessee. Hence, he need not buy the assets and if there is any price change in the assets, it will not affect the lessee.

8. Better alternative

Nowadays, most of the commercial banks and financial institutions are providing lease finance to the industrial concern. Some of the them have specialised lease finance company. They are established to provide faster and speedy arrangement of lease finance.

About Author Mohamed Abu 'l-Gharaniq

when an unknown printer took a galley of type and scrambled it to make a type specimen book. It has survived not only five centuries.

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