Definition and purpose of Leasing

DEFINITION: Leasing

Leasing (called crédit-bail in French) is credit granted for the acquisition of a good in exchange of leasing charges and a right of ownership option at the end of the lease.

Leasing is not a loan.

Leasing is a contract whereby someone is using equipment belonging to someone else. The user (the lessee) regularly pays specific amounts to the owner (the lessor). An important aspect of leasing is that the use of the equipment is separate from its ownership. The leasing arrangements benefit both parties – the lessee can generate additional revenues from the use of the equipment and the owner receives an income while preserving the property as guarantee.

Purpose of leasing

  • To pay for the use of equipment.
  • To pay an asset as it generates profit.
  • To benefit from the expense, thus reducing the company’s income tax.
  • To be able to use equipment that responds to one’s needs, as our needs change and progress, without having to invest.
  • To avoid investing in an expense.
  • To establish leases according to our capacity to pay.
  • To establish the term ot the lease according to the equipment’s service life.
  • To keep the capital for the cash flow