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What are Major Kinds of Lease Financing?

Home » Accounting » Lease Financing » What are Major Kinds of Lease Financing?

There are different types of Lease Financing available. Major types of lease financing available, for example, are:


  • Finance Leases: Companies who would rather finance at a higher percentage of the cost of brand new equipment most often use capital leases because they usually prefer to own the equipment when the lease agreement ends. The full purchase price of the equipment or supplies, including interest, is then portioned throughout the length of the lease agreement.
  • Operating Leases: Operating leases lets you retain the use of your equipment and lessor owned property without retaining the debt on your balance sheet, as stated earlier. This is often the form of leasing with lower payments and typically the most tax-friendly. Additionally, true or operating leases usually contain three choices which are available to you at the end of your lease: you can purchase the equipment, return the equipment or extend the lease. This tool is most often used to assist in the management of a company’s return on equity, assets, and liabilities. Operating leases are most often utilized for equipment that will quickly diminish or become outdated, such as any form of computer electronics or media.
  • Short-Term Leases: Often businesses that need equipment for operation and development that will not immediately generate revenue or will only need the equipment for a short while, usually 2-3 months, usually select Short-Term Leases. Usually a short term lease is structured similar to finance or operating lease, however with Short-Term Leasing, there is usually no advance payment required and the initial payment begins after the leasing contract is well into the 2-3 month stage. This type of leasing is obviously most beneficial when a business requires equipment quickly with little to no up front money and a grace period of a few months before payments begin.
  • Seasonal or Skip Leases: This form of leasing is most often used by seasonal businesses, agricultural companies or recreational businesses which usually require flexible payment schedules due to the nature of the work or market, i.e., seasonal business conditions. The best part of this form of leasing is that you can fully specify the months when you would prefer not to make payments. Seasonal Leases can also be adjusted if there is the possibility of irregular cash flow or “dry spells” in your business market.



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