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State the advantages of leasing as a type long term financing.

State the advantages of leasing as a type long term financing.

Answers

Lellah
1. Leasing is less capital-intensive than purchasing, so if a business has constraints on its capital, it can grow more rapidly by leasing property than it could by purchasing the property outright.
2. Capital assets may fluctuate in value. Leasing shifts risks to the lessor, but if the property market has shown steady growth over time, a business that depends on leased property is sacrifices capital gains.
3. Leasing may provide more flexibility to a business which expects to grow or move in the relatively short term, because a lessee is not usually obliged to renew a lease at the end of its term.
4. In some cases a lease may be the only practical option such as for a small business that wishes to acquire assets but doesn’t have finances.
5. Depreciation of capital assets has different tax and financial reporting treatment from ordinary business expenses. Lease payments are considered expenses, which can be set off against revenue when calculating taxable profit at the end of the relevant tax accounting period.
6. Leasing is inflation friendly. As the costs go up over five years, you still pay the same rate as when you began the lease, therefore making your dollar stretch farther. (In addition, the lease is not connected to the success of the business. Therefore, no matter how well the business does, the lease rate never changes.)
7. There is less upfront cash outlay; you do not need to make large cash payments for the purchase of needed equipment.
8. Leasing better utilizes equipment; you lease and pay for equipment only for the time you need it.
Lellah answered the question on November 8, 2021 at 07:24

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