What is the primary feature of lease financing?

Lease financing is primarily characterized by the renting of assets rather than purchasing them outright. In lease financing, an organization can acquire the use of equipment, facilities, or vehicles without the significant upfront capital expenditure associated with buying those assets. Instead of ownership, the lessee (the entity that leases) makes periodic payments to the lessor (the owner of the asset) for the right to use the asset for a specified period.

This method can be appealing because it allows for greater financial flexibility and the opportunity to use capital for other investments or expenses. Additionally, leasing can often lead to lower maintenance and operational risks because the responsibility for maintenance is typically retained by the lessor.

In contrast, purchasing assets outright requires substantial initial capital, using bonds involves borrowing against collateral, and obtaining grants is reliant on external funding that may not be guaranteed. Thus, lease financing stands out as a strategic option for organizations looking to manage cash flow and financial risk effectively.