Finance lease

A finance lease is a lease structure where the lessee takes on substantially all the risks and rewards of owning an asset, even though the lessor retains legal title through the term, and typically ends with the lessee either paying out a residual value to take ownership or arranging its sale. It sits closer to a chattel mortgage or hire purchase in practical effect than to an operating lease, since the lessee is generally responsible for maintenance, insurance and the asset's residual risk, and the arrangement is structured around eventual ownership rather than short-term use. Businesses choose a finance lease over a chattel mortgage or hire purchase for reasons that often come down to accounting treatment, cash flow profile and the residual value structure preferred, which is best discussed with an accountant before committing to a structure. Lenders assess a finance lease much like other equipment finance, against the asset's value, expected residual, and the borrower's serviceability.

Related

Asset & equipment finance · Operating lease · Hire purchase