A method of financing capital equipment in which the business acquires use of the equipment immediately without having to buy it. Leasing can be more expensive than purchasing because of the loss of tax benefits from depreciation, but it frees up capital for other business uses. [go back to glossary list
Leasing is classified into two categories: finance leasing and operating leasing. Finance leasing is similar to loans extended by banks in that leasing companies procure investment funds for corporations that plan to make capital investment. Leasing firms should have considerable fund-raising capability in finance leasing but this is difficult now due to the weakness of parent companies, including banks.In operating leasing, a residual portion of the price of an asset after the expiration of the leasing term will be assessed before leasing and the leasing fee will be decided based on that value minus the residual portion. Demand for operating leasing is growing, replacing that for finance leasing, though operating leasing is premised on the existence of used asset markets.