Asset leases 101

Unlike a commercial loan of capital to purchase an asset or piece of equipment, an asset - or equipment - lease means that the equipment is owned by the financier, and the customer obtains the sole right to use it. At the end of the lease, the customer has the option of returning the equipment, making an offer to buy it, or continuing to lease it.

There are two types of asset leases:

1. A capital lease agreement; and

2. An operating lease agreement.

A capital lease agreement is the same as an operating lease, except that at the end of the operating lease the equipment ownership transfers to the customer on payment of an agreed amount. Either arrangement can be more suitable than a commercial loan for capital intensive projects.

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