Listen to a Business English Dialogue About Financial lease
Addison: Hey Taylor, do you know what a financial lease is?
Taylor: Hmm, not really. Is it like renting something for a long time?
Addison: Sort of, but with a financial lease, you’re leasing equipment or property for a fixed period, and it’s more like a purchase agreement where you pay rent to use the asset.
Taylor: Oh, I get it. So, does the lessee have to pay for maintenance and repairs in a financial lease?
Addison: Usually, yes. Unlike an operating lease where the lessor handles those costs, in a financial lease, the lessee is responsible for maintenance and repairs.
Taylor: That makes sense. So, what happens at the end of the financial lease term?
Addison: At the end of the lease term, the lessee typically has the option to purchase the asset at its fair market value or return it to the lessor.
Taylor: So, it’s like having the option to buy the asset after leasing it for a while?
Addison: Exactly. It gives businesses flexibility and the opportunity to use the asset without having to commit to purchasing it outright from the beginning.
Taylor: That sounds beneficial for businesses that need equipment but may not have the capital to buy it upfront.
Addison: Absolutely. It’s a common financing option for businesses looking to acquire expensive equipment without tying up a lot of cash.
Taylor: Are there any tax implications for businesses using financial leases?
Addison: Yes, there can be. Since the lessee technically doesn’t own the asset, they may be able to deduct lease payments as a business expense, which can lower their taxable income.
Taylor: That’s good to know. Thanks for explaining, Addison.
Addison: No problem, Taylor. Financial leases can be a useful tool for businesses looking to manage their cash flow and acquire necessary equipment.