Leasing: a viable financial-management option.

• Author: Isenhower, Rick
• Position: Finance

In today's market, leasing has become a very viable finance option for businesses. An estimated $244 billion in equipment alone will be leased in 2002, as reported by the Equipment Leasing Association.

All types of business assets can be leased today. For example, computers and office equipment, excavating equipment, industrial and manufacturing machines, agricultural equipment, business vehicles and the buildings that house businesses. Leasing spans many market segments and business types, regardless of the size of the business operation. Simply stated, there is a lease available for every business asset and in every industry.

Basic lease terms include:

Lease--A lease is a written contract in which one party conveys the use of an asset to another party for a specific period of time at a predetermined rental payment.

Lessee--The party that uses the leased asset in its business.

Lessor--The party that has the legal or tax title to the asset and grants the lessee the right to use the asset for the lease term. This is the party entitled to receive the rentals.

True Lease--A true lease is a transaction that qualifies as a tax-deductible lease under the Internal Revenue Code. It allows the lessor to claim ownership and the lessee to claim the rental payments as tax-deductible operating expenses.

Note: It is always advised that you consult with experts in the leasing field and/or tax advisers to help you understand how different types of leases could benefit your business.

Some of the advantages of an operating lease or true lease transaction include:

Capital requirements can be less--A lease transaction usually requires less capital than an outright purchase or a loan. The capital can be put back into the business for revenue-generating activities or can be used for assets that appreciate in value.

Tax treatment of a lease--If structured correctly, the operating lease payments can be deducted as a business expense. This can reduce your business's taxable income.

Balance sheet treatment of a lease-Since an operating lease...