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Why is lease, sale and lease back consider short term financing? what is the difference between short term and long term financing?
There is no strict definition as to what is long-term and what is short-term, but generally long-term financing is finance repayable after more than 5 years.
Sir can you explain why is it a short term finance both leasing and sale and lease back. How is it repayble in this case?
When a machine is bought, the money is borrowed and so the cash flows are the payments of interest and the amount borrowed over the period of the borrowing.
When a machine is leased, the have the use of the machine in the same way as if they had bought it, and the cash flows are the lease payments over the life of the lease (and the payments to the lessor are effectively repaying the lessor for the cost of the machine together with interest).
So the situation is both cases is similar – they have the machine and the cash flows are the payments that follow.
Have you watched my free lectures on lease and buy?
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