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Benefits of Leasing

A.T. LEASE provides a wide range of asset financing approaches, including tax driven and non-tax solutions. If a lease is properly structured, it will significantly reduce your after-tax cost of capital and help address your specific cash flow and balance sheet needs as well as your funding and asset management concerns.

  

Advantages to the Lessee
 

Flexible, fast and negotiable.
Frees working capital for more productive use (conserved cash flow)

Increase the borrowing capacity of the lessee i.e. additional source of finance which doesn’t affect other borrowing sources.

Off the balance sheet means of finance.

Postpones taxes / transfer tax benefits noting that the after tax cost of leasing is less than the after tax cost of equity financing , furthermore the tax deductibility of lease payments provides a larger and more immediate cash flow than that provided by depreciation and interest deductions.

Hedging against risk of obsolescence (in True Lease)
Finance against non-bankable assets.
Leasing provides long term finance without diluting ownership or control. 


Financial Impact

Over the life of the lease, the lessee will incur only the annual lease expense (lease rent), which will be reported on his profit and loss statement as operating expenses as prepaid lease rent expense. Such accounting treatment will have positive impacts on your financial ratios as it will

 

Lower the lessee’s leverage
Enhance the asset efficiency ratios by increasing the return on assets (ROA).

Reduce the impact on book earnings, since lease payments are made from pre-tax rather than after-tax earnings and, unlike capital purchases.

Rental payments reduce the lessee’s taxable income due to possible use of the accelerated depreciation, which results from having the term of the lease contract less than actual depreciation rate of the asset.


Overall, leasing is the cheapest source of financing for tax-paying companies

 

 
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