An Operating Lease is very similar to a Finance Lease in many ways.  The main difference is the fact the risk and reward of the asset stays with the Lessor (manufacturer or finance company).

In simple terms, this is a method of renting an asset over a short-medium timeframe.

This lease concept is not linked to the useful life of the asset.  As the lease is short term, costs are based on the proposed term and asset depreciation over that time, with a residual value (balloon) a factor in establishing the appropriate monthly payment.

Separate maintenance contracts can be taken out to run alongside an Operating Lease although often this is taken care by the Lessor.

Due to the ownership of the asset never being transferred to the business, the asset is not registered on the company’s balance sheet.  The full value of the rentals can be offset against profitability.