Why would a company prefer to lease instead of buy an asset? What are the benefits and the risk?

A company may prefer to lease instead of buy an asset for a variety of reasons. Leasing offers the potential for lower upfront costs, as it does not require any large down payments or loan origination fees. Additionally, leasing allows businesses to access the latest technology without having to invest heavily in expensive equipment that can depreciate quickly. The cost associated with maintaining and repairing leased assets is also often taken care of by the lessor, meaning there are no additional overhead costs for the lessee.

Leasing also offers more flexibility than buying an asset outright. Businesses have the option to renew their lease on certain terms when it expires, allowing them to upgrade their equipment or switch out outdated models without bearing the full cost up front. It also makes it easier for companies with cash flow constraints since they don’t need large amounts of capital on hand in order to acquire new assets.

However, leasing has its drawbacks as well. While many leases offer tax advantages over purchasing a similar asset, this may not necessarily be true in all cases depending on local laws and regulations; thus businesses should do research before making decisions about which type of financing would be most beneficial for them.

In addition to this, although leases tend to come with fixed monthly payments they can become more expensive over time due to interest rates and other factors such as inflation or unexpected repair costs that might arise during its life cycle; so it’s important for businesses weigh their options carefully before making any commitments either way.