LEASE FINANCE

Lease financing is an important part of trading banks' business. It is a method of financing with a lease agreement instead of a loan.

Leaseback finance is a specialist form of lease financing for real estate but lease financing is available for most high cost items of plant, and equipment. Items are specifically selected for the use of the lessee.

The bank cannot purchase items as stock and then lease to clients. Most agreements allow the lessee to buy the item at residual value at the expiration of the lease term. Two important advantages of lease financing are:

• the total rent is tax deductible whereas only the interest part of the payment is allowable for the normal loan.
• the lessee minimises loss through depreciation.

The lessee may or may not have a right of ownership of the leased property at the end of the lease.