The lease is a contract wherein the owner of an asset grant other than the party the right to use the asset in return for a periodic payment. In other words, the lease is a renting of assets for a specified period. The owner of the asset is called the Lesser, whereas the user is known as Lessee. Lease financing is an important source of finance for modernisation and diversification of the firm. Lease financing is suitable and popular for those assets where technological changes are common. For example, computers and electronic equipment.
Merits of Lease financing:
- The owner of an asset grants the other party the right to use the asset.
- It is an important source of finance for modernisation and diversification of the firm.
- The owner can rent the asset for a specific period of time.
- The receiving of the fund has no effect on ownership.
- It has no effect on receiving of loan.
- It is suitable for those assets where technological changes are common.
Limitations:
- There are several limitations in the proprietorship of the lease arrangement.
- If it is not registered then it can create problems in conducting the business.
- In case the financer wants to end the lease agreement before its actual date then he would have to pay extra money for that.
