Operating Lease
What does it mean
There are two primary types of leases: Operating Lease and Capital Lease. An Operating Lease is an agreement between two parties where one party agrees to pay for the opportunity to use an asset for a set period of time, but at the conclusion of the contract, the asset being leased is returned to the party that had been receiving payments. In an Operating Lease, there is no change in ownership as part of the transaction. An example of a lease like this would be a copier machine lease.
Why does it matter
Knowing the difference between the types of leases a borrower has impacts a bank in the following ways:
- Operating leases do not involve a change in ownership in the asset
- Operating lease payments are an expense item on the income statement
- Neither the asset being lease nor the obligation of payments is listed on the borrower’s balance sheet
Other Relevant Terms
Want to Master Banking's Favorite Ratio?
The Debt Service Coverage Ratio (DSCR) is one of banking's favorite ratios. Want to ace it without breaking a sweat? No problem! We've got some simple, no-fuss pointers that will help you nail this ratio every time. You've got this!
Get the Cheatsheet NowNot Finding What You Are Looking For?
Let me know what terms, ratios or content you want to see covered.
Request Term or Ratio
Am I missing a key term or ratio? Let me know what you want to see covered.
Request Content
Do you have a topic idea you'd like to see covered? Send it my way.
Checkout Courses
Enhance your skills through a deeper understanding of your customers' businesses.
A bit about me
Greetings! I'm Clay Sharkey, and there is nothing I like more than assisting others in achieving their goals. I firmly believe that by enhancing a banker's understanding of their customer's' business, they can provide superior service. This superior service, in turn, leads to stronger relationships for the bank, improved performance for the businesses, and better experiences for our communities. Win-win-win.
