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Advantages
• It does not tie up the company’s funds in an asset.
• The arrangement may ensure lessor bears the maintenance costs reducing the companies operating costs.
• The company has the option to purchase assets at the expiry of the lease period at which time it will know the viability of the asset.
• The company (lessee) will enjoy the lease charges as allowable expenses thus reducing taxable income and tax liability.
• Lease finance enables the lessee to use the asset to create financial surpluses which may then be used to buy assets.
• It is usually a long-term arrangement which enables the company to plan returns expected and operations which may be carried out.
Disadvantages.
• It is a pre-conditional finance (as on the use of asset)
• In the long term the lease charges may out-weigh the cost of buying own asset.
• It is available for a selected asset and this limits flexibility.
• It is useful for financing fixed assets and not working capital
• Lease finance may not be renewed leading to loss of business.
• Lease financing lowers the company’s credit rating (i.e. the asset in the balance
sheet is shown as leased asset).
Kavungya answered the question on March 11, 2019 at 13:41
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