What is off-balance-sheet financing? Based on its name alone, you may not think it sounds entirely legal or reliable. However, off-balance-sheet financing is completely legitimate, and it's permitted as a Generally Accepted Accounting Principle. Off-balance-sheet financing is used to reduce a company's debt in order to achieve a low debt-to-equity ratio. This is done to make the company appear as a good credit risk.
Many joint ventures, strategic, R&D partnerships, and large projects are financed in this manner. Operating leases are an example of this type of financing. This way, the lessor is able to keep the asset on its balance sheet, while the company leasing only reports the rental expense.
As this is a complex topic, our CPAs can answer any questions you have about off-balance-sheet financing as it relates to your business. Call us today if we can be of assistance.
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