Why Lease?

As part of this special issue on alternative sources of equity, we thought it appropriate to bring up that old stand-by – leasing. In the simplest accounting definition, a lease is the contract under which property is rented. The owner of the property, the lessor, grants a lease to a person, the lessee, who secures the right to possess and use the property. The forms of leases are multitudinous with structural variations to cover almost any customer need. However, at the macro level there are basically two generic types: finance leases and operating leases. Before we get into specifics, we need to stress that in many cases and depending on who is using them, leasing terms are at times interchangeable. For the moment, we will ignore the tax and accounting definitions and treatment and focus instead on the nature of the transaction. The main difference is simply whether the lease is being used as a financing vehicle or just a form of rental agreement.

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