Leasing is one of the most significant sources of medium and long-term financing, primarily due to its economic efficiency in securing funding. According to the definition given in the International Accounting Standard (IAS) 17, ‘A lease is an agreement whereby the lessor conveys to the lessee, in return for payment, the right to use an asset for an agreed period of time.' Leasing can also be defined as a written agreement between two parties: a leasing company (lessor) and the user of the leased asset (lessee). The lessor purchases the asset (the object of financing) from a supplier and allows the lessee to use it over a given period of time, while the lessee is, in return, bound to make periodic payments to the lessor under the conditions defined in the contract.
Leasing allows companies to modernize their equipment, increase their efficiency, and achieve competitive advantage. Small and medium-sized enterprises, and not just start-up companies, increasingly manage their development through this kind of funding. This is why many governments encourage leasing as a form of investment incentive.
The first cases of leasing date back to 2000 BC, when the Babylonians appear to have used it for boats and livestock. One of the first theoretical descriptions is to be found in Roman legal writings. Finance leasing in its modern form emerged in the USA. The first finance leasing company was founded by Henry Shofeld in the USA, in 1952. Finance leasing in Europe started in the late 1950s and early 1960s. Leasing has been emerging slowly in developing markets in Asia, South America, and Africa since the 1970s. As early as the 1980s, leasing was a globally present trend.
Nowadays, leasing is an efficient financial instrument for small and medium-size enterprises acquiring and updating fixed assets or financing high-value transactions in transportation, construction, and project financing, etc.
Leasing has become a very popular alternative financing instrument. It offers the client simplicity and the provider good collateral and reduced risk. Another important advantage for the client is that lease instalments involve only material costs. There are cost and tax saving opportunities that can compensate for the higher costs involved in leasing, compared to bank loans.
