Start-up companies typically have little cash and limited debt lines. Mature companies might have other needs such as to keep debt lines free, to comply with debt covenants and to cope with the technological obsolescence of certain types of equipment. Thus, leasing allows companies to be more flexible in the management and use of their equipment. With leasing, the uncertainties and risk of ownership are assumed by the lessor, which allows the lessee to focus on the use of the equipment as part of managing the overall enterprise. Equipment is costly and the risk of technological obsolescence can be minimized with leasing, since upgrades and adding equipment is facilitated with leasing.
Equipment needs change over time as firms grow and diversify.
Leasing allows the enterprise to introduce new technology to address growth and diversification. The use of leasing avoids capital budgeting with depreciation schedules and complex tax considerations. For the lessee, the recurring lease payment is treated as a deductible, operating expense. Leasing keeps lines of credit open, avoids costly down payments and improves cash flow. With off-balance sheet financing, leasing helps the lessee with balance sheet management.