Leasing - Definition & Steps 🏗️

Definition: Leasing is a contract where the owner of an asset (Lessor) grants the right to use the asset to another person (Lessee) for a specific period, in return for periodic payments (Lease Rentals).

Parties:

1. Lessor: The Owner (Finance Company / Bank).
2. Lessee: The User (Manufacturer / Airline).

Key Concept: "Use the asset, don't own it." (Profits come from use, not ownership).

Steps in Leasing Transaction 🔄

1. Need Identification: Lessee decides he needs a machine but doesn't want to buy it (to save cash).
2. Selection: Lessee selects the asset and the supplier.
3. Application: Lessee approaches Lessor (Leasing Co).
4. Purchase: Lessor buys the asset from Supplier.
5. Contract: Lease Agreement signed.
6. Delivery: Supplier delivers asset to Lessee.
7. Payment: Lessee pays rentals to Lessor.
8. End of Lease: Asset returned to Lessor (or sold to Lessee at scrap value).

Advantages of Leasing ✅

1. 100% Financing: No down payment needed.
2. Tax Benefit: Lease rentals are tax-deductible expenses (Reduces tax for Lessee).
3. Cash Flow: Saves working capital for other uses.
4. No Obsolescence Risk: If technology changes, Lessee can just return the asset (in Operating Lease).

Quiz Time! 🎯

💡 Final Wisdom: "Why buy a cow when you only want the milk? Leasing lets you drink the milk (use asset) without buying the cow!" 🐄🥛

Next up: Types of Lease - Financial vs Operating! 🆚