Finance Leasing Manual - FLM5.05

Continued attraction of finance leasing

Although the worst 'off the balance sheet' accounting treatments have probably gone, finance leasing remains attractive for two main reasons.

• First, there is the industry's argument that a lessor who owns an asset is financially more secure than a mere lender. Lessors are therefore more prepared to lend to less solid businesses and, perhaps, to lend cheaper than ordinary lenders (even leaving aside tax considerations).

• Second, finance leasing has been able to provide cash-flow timing gains over a loan, particularly when the lessee is tax exempt or 'tax exhausted' (that is, has no current tax liability because of losses, capital allowances etc). The rentals are reduced to reflect the timing advantages gained by the lessor from the capital allowances. Some of these benefits have been reduced in the two 1997 Finance Acts (see FLM6.50 onwards).