A type of lease in which a financier (a finance company, a bank) is and remains the legal owner of the leased asset during the entire period of lease, while the lessee has operating control over that asset and enjoys the economic benefits/ risks incidental to the ownership of the asset. This lease is based on providing finance by acquiring an asset for, and placing it at the disposal of, a lessee, for most of the useful life of that asset. There are a set of criteria that must be met in order to classify the lease a financing lease, including (1) coverage of a significant portion of the useful economic life of the asset by the lease term (generally, 75%), (2) existence of a bargain purchase option (whereby the lessee can purchase the asset at a price lower than its fair value at a future date, and (3) the net present value of minimum lease payments is 90% of the fair value of the leased asset, at least.
A financing lease is also called a capital lease or a sales lease.
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