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Hello Sir could you please explain this answer from BPP kit to me about non-financial lease benefits, to be particular about the covenants I really don’t understand… Kindly help
”’Source of finance
Lease finance can also be easier and quicker to obtain because the lessor remains the legal owner of the machinery. In addition, if a loan is used then covenants may be imposed (for example on dividend payments, or the use of other debt finance) and this can restrict the flexibility of the firm in future years; the use of lease finance avoids this. ”’What it means is that if they borrow money then the lender might impose conditions (covenants) such as making it a condition that the level of dividends is limited, or that the level of gearing is limited (which limits raising more finance in the future).
That problem does not occur if the lease the asset.
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