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Advantages and Disadvantages of Leasing
Advantages of Leasing
• The total financing of the investment objects which leads to a reduced own financial effort. Therefore, the supplementary financial resources can be used for the other investment projects or simply for maintaining an increased liquidity;
• Leasing proves to be a perfect alternative for obtaining equipment of a high complexity and technicality, for which the moral depreciation has a high percent, allowing the operative exchange of some morally depreciated equipment;
• The rapidity of the approval of the operation process;
• The accounting operations for the leasing contract: for the beneficiary only the registration to the expenses of the royalties, which makes the balance sheet of the company not to modify and also gives the possibility of contracting some credits;
• The constant amount of the royalty enables the easy scheduling of the expenses;
• There is not necessary any supplementary guarantee, the object of the leasing contract being in itself a guarantee.
Disadvantages of Leasing
- The leasing is efficient only if the equipment can be operated over the whole period of the contract; not using this equipment over the whole period of the contract, mainly due to the lack of orders, leads to losses for the beneficiary;
- In case the lessee could obtain a bank credit under advantageous conditions, the cost of leasing would be higher;
- The good that makes the object of the leasing contract doesn't belong to the lessee, and therefore he cannot sell it during the period of the contract, and the sublease can be accomplished only with the owner's agreement;
- Through leasing only the usage right is given away, the ownership right being kept, but therefore the supplier's goods can be damaged by improper usage, after the first lease being possible that the good will not find other users.
Read about Differences between Leasing and Credit.