Leasing and Off-Balanced sheet Financing

Off-balanced sheet in financing refers to accounting practice technique in which we record any liabilities or assets which are not shown or visible in company's actual sheet , means the data is hidden from the clients that we don't want to show to other persons of our choice. Off -balance sheet is legal until everything is under control of company officials, but when they started hiding some details from company,any asset or liability the it is denoted as illegal work done by the company which can lead to major problem when come under vision. This is very important that companies hide many of the transactions from the investors , so investors should remain very carefull while checking the balanced sheet of the company so that they come to know if they are involved in any kind of fraud and can keep themselves away from that company. Generally this off balance sheet financing I used to make impact on the level of debt and the liabilities according to the investors and many more reasons are included in it.

If we talk about off balance sheet financing in the form of examples then common forms of this off balance sheet financing is that it deals with the operating leases, means everything that is common with the lease of anything and with the partnerships also.Operating leases means that a company or a business can rent a part of any of their equipment of some period of time to make some money and then they can get back their equipment after the completion of that specific period. Basically these operations are closed now a days but some of the company follow this now also. In both the cases whether it is operating leases or liabilities both has some of the differences between them. Like if any of the company or any buisnessman choose the operating lease, means rent any equipment part as we have talked above in this the company only makes or handle the rental expenses for that equipment part and it doesnot include asset on the balance sheet.

On the other hand if talk about the liabilities means when any company official or any businessman buy equipment or any building or any site then the company records or handle the asset and the liability of that equipment in their balance sheet record. The main difference if we talk about is the operating lease results in a very clear balance sheet, because in this we only handle with the rent of the leased equipment part not with the asset of that equipment part. Now if we talk about another example of off balance sheet then it is partnership which is another common financing term. When any of the company engage in a partnership form then they should not have to mention anything about that partnership in their off balance sheet and then in return it also helps us in making a clear or clean off balance sheet at the end.  Till this I hope you got some of the idea that why most of the companies use the OBS financing system means off balance sheet financing system in their business because these two types of their off balance sheet financing helps in maintain the balance sheet clean and the records are handled clearly without any kind of disturbance involved in it. This kind of financing makes a good impact or arrangements on the investors of the company and the one who are willing to invest in the company. The main problem that every company official face and any of the businessman faces it is that the when we show our balance sheet to the investors and when they see they find that some of the financial statements that are mentioned need not to be mentioned in this and some which are partially mentioned need to be disclosed more in their balance sheet, this is the problem that companies face while chatting with the investors. Because of this partially discloser and unusual discloser companies full debt or total debt is not presentable to the investors which can make a bad impact on the investors of the company and also to the future of the company.

How we can say that OBS financing is more attractive to the investors and buyers and companies too-

OBS financing is very impactful, attractive and very useful to the companies, but here we add some condition that is attractive for only that companies which are already highly levered. As we say firstly the companies that are already have high debt levels, when they borrow more money is typically more expensive then for the companies who have little debt because as we all know the lenders charge very much big interest on the money. And secondly, we can say the by borrowing some of the money the companies leverage ratio while making agreements between the borrower and the lender it should be violated. Third, partnerships such as in those for R&d are attractive to the companies because R&D is expensive and may have a long time horizon before completion.  If we talk at the end  means we can say nutshell then off balance sheet financing maintain the in the company means everything is very cleared in the off balance sheet financing.

The main purpose of the off balance sheet financing I we talk about is it helps us to maintain the debt to equity ratio below the certain level so that in future if you are in the need of funding then you can easily get which you not get otherwise if you are not using off balance sheet in your company. This in the end makes the companies ratio credit good and for the investors a better choice of company to invest in it. It involves the use of creative accounting techniques that everybody don't know and also some financial instruments which will in return helps you too make off balance sheet of the company. 

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