Leasing & Hire Purchase
Leasing / Hire Purchase
1. Financing Options • Own Funds • Bank Borrowing / Borrowing • Equity • Leasing • Others
Option depends upon • Opportunity cost of funds • Availability of Funds • Debt : Equity Position • Nature of Assets (i.e. obsolescency)
2. What is Lease • Lease can be defined as contractual arrangement where the owner (lessor) of an equipment transfers the right to use the equipment to the user (lessee) for an agreed period of time in return of rental.
• At the end of the lease period the asset reverts back to lessor unless there is a provision for the renewal of the contract or there is a provision for transfer of ownership to lessee.
• Today leasing or equipment leasing includes leasing of plant and machinery, office equipments, automobiles, ships and aircrafts.
3. Meaning of Lease Financing □ A lease transaction is a commercial arrangement whereby an equipment owner or manufacturer conveys to the equipment user the right to use the equipment in return for a rental.
□ In other words, lease is a contract between the owner of an asset (the lessor) and its user (the lessee) for the right to use the asset during a specified period in return for a mutually agreed periodic payment (the lease rentals).
□ The important feature of a lease contract is separation of the ownership of the asset from its usage.
□ Lease financing is based on the observation made by Donald B. Grant: “Why own a cow when the milk is so cheap? All you really need is milk and not the cow.” 4. Types of Lease Agreements [pic]
5. Financial Lease If lease contract transfers substantial part of the risk and reward associated with the ownership from lessor to leasee. 1. Transfer of ownership by the end of lease. 2. Leasee has the option to buy the asset at a price which is substantially lower than fair market price at the date of option or at the
1. Financing Options • Own Funds • Bank Borrowing / Borrowing • Equity • Leasing • Others
Option depends upon • Opportunity cost of funds • Availability of Funds • Debt : Equity Position • Nature of Assets (i.e. obsolescency)
2. What is Lease • Lease can be defined as contractual arrangement where the owner (lessor) of an equipment transfers the right to use the equipment to the user (lessee) for an agreed period of time in return of rental.
• At the end of the lease period the asset reverts back to lessor unless there is a provision for the renewal of the contract or there is a provision for transfer of ownership to lessee.
• Today leasing or equipment leasing includes leasing of plant and machinery, office equipments, automobiles, ships and aircrafts.
3. Meaning of Lease Financing □ A lease transaction is a commercial arrangement whereby an equipment owner or manufacturer conveys to the equipment user the right to use the equipment in return for a rental.
□ In other words, lease is a contract between the owner of an asset (the lessor) and its user (the lessee) for the right to use the asset during a specified period in return for a mutually agreed periodic payment (the lease rentals).
□ The important feature of a lease contract is separation of the ownership of the asset from its usage.
□ Lease financing is based on the observation made by Donald B. Grant: “Why own a cow when the milk is so cheap? All you really need is milk and not the cow.” 4. Types of Lease Agreements [pic]
5. Financial Lease If lease contract transfers substantial part of the risk and reward associated with the ownership from lessor to leasee. 1. Transfer of ownership by the end of lease. 2. Leasee has the option to buy the asset at a price which is substantially lower than fair market price at the date of option or at the