It stands for off-balance sheet financing; a method of financing (and an accounting strategy) that involves recording certain assets, liabilities, or transactions away from a firm’s balance sheet (statement of financial position), for particular reasons or purposes. This can be done by structuring debt, financial instruments, transactions, financial activities, leases, project financing and sales of assets in a way that these items/ transactions have no direct effect on a balance sheet. It is meant to allow managements to take advantage of certain opportunities that would otherwise be unavailable or unattainable.

There are many reasons for off-balance sheet financing including attraction of more investors or the need to turn around a situation where a lot of debt hinders a firm’s ability to borrow more capital to fund its operations.

Typically, in an off-balance sheet method of financing the element of control (in the hand of a firm) over specific items does not exist- that is, a firm doesn’t control such items, and as such cannot influence their returns in a direct way, among others.