SMITA PATEL ISHAN MEHTA KRUNAL DESAI

CHINTAN VORA DHRUV BHAYANI RONAK

What is LEASE?
A lease is a contract whereby the owner of an asset grant to another party the exclusive right to use the asset usually for an agreed period of time in return for the payment of rent.
Parties to a Lease Lessee--User of the Asset Lessor--Owner of the Asset Trustee--Represents the Creditors with a Third Party Lease

ABOUT LEASE FINANCE.

MAP of FINANCE SOURCES

CHARACTERISTICS....
Amount
Properties

Asset
Term Ownership

Inflation
Rights

RISKS ASSOCIATED WITH LEASE FINANCING

.CREDIT RISK

.TRANSACTION RISK

.INTREST RATE RISK

.LIQUIDITY RISK

Common Lease Types of

1.
2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13.

Operating lease Finance lease Capital lease Direct finance lease Full payout lease Guideline lease Leveraged lease Net lease Open-end lease Sales-type lease Synthetic lease Tax lease True lease

LEASE TYPES..
1.Operating Lease:

2.Finance Lease:

3. Capital Lease:

4.Direct Financing Lease :.

LEASE TYPES..
5. Full Payout Lease:

6. Guideline Lease:

7.Leveraged Lease:

8.Net Lease:

LEASE TYPES
9.Open-end Lease :

10.Sales-type Lease:

11.Tax Lease:

12.True Lease:

Advantage:
Provides full finance : provision of 100% finance is main

benefit of leasing . if the lease borrows money from banks to purchase the asset he gets 70 to 80% finance only. While in case of lease he does not have to make any provision for finance. He gets 100% finance. He will be required to pay rent only.
Flexible : it is flexible In the sense that risk of obsolesecne

because he is not of financial lease, agreement is for the whole useful life of asset. The lessee is required to make the rental payment for the whole period even if the asset become obsolete.

Advantage:
Save from recurring cost of finance : In case asset are taken on lease, the

firm will not have to incur the cost of raising finance frequently whenever it wants to purchase any asset. Absence of restriction : - it is main advantage of leasing. If money is borrowed from banks or other financial institution , they would put restriction on borrower as regard further amt. to be borrowed dividend etc.. but in case of lease it is absolutely free from all such restriction. Tax benefit : - both the parties get certain deduction. The lessee gets full rent as deduction. This is higher then depreciation charges because it includes interest and some amt. toward profit of the lesser Increase the capacity to borrows : - the lesser does not show the asset in his balance sheet nor the future liability for payment of rentals. Hence less debts equity ratio remains law and he will be able to borrow more funds in future.

Advantage:
Useful is case if fast changing technology : - it is particularly useful to the

lessee in case were fast technology change are taking i.e reason why more and more business resort to leasing in case of very costly and expensive machines. Faster and cheaper credit : - its is faster than if money is to be borrowed from banks or other financial institution. Leasing company promptly sanction the request and it is more accommodative in respect of terms of financing.

Disadvantages:
No benefit of residential value :- when a firm purchase an asset, it is has full right to value of asset at the end of its useful life. But the benefit is not available to the lessee in case of lease . No benefit of ownership : - the lessee does not get any benefit, which would be available if he were the owner of asset e.g price of an asset has increased considerably, the lessee cant sell it.

Disadvantages:
High cost of leasing : - It is experience that leasing is more costly than

borrowing. The rate of interest charged very much higher than that on borrowing. This is because the lease rental includes the cost of asset, some profit to the lesser payment for the employing experts by the lesser and also payment for related service. Of course if the lesser is making purchase of asset in large scale hr gets the benefit of the lower cost and this can be form of lower rent.
Not flexible : - In case the lessee is not able to arrange for finance for

buying an asset he will have to lease the asset. In that case, the amt. of lease rent is fixed in advance for the whole period. If the rate of interest declines in market the borrowing can be returned and interest can be saving. But that is not possible in a change, because rent amt. is not changed.

Why the Lease Financing is important in this era?

Leasing is big business in the 21st century with over billions of

dollars worth of commercial equipment financing being done by American business annually. Whether it is commercial equipment leasing or a sale lease back, both are increasingly being used to acquire liquid funds for a company. Financing through lease financing company can help your business conserve working capital. And, because commercial equipment financing frees up your working capital for other investments or profit making activities it just makes sense to be leasing rather than buying.

REFRENCE :
http://www.allbusiness.com/businessfinance/leasing/

2540-1.html http://en.wikipedia.org/wiki/Finance_lease
http://ideas.repec.org/a/onb/oenbmp/y2008i1b3.html http://en.wikipedia.org/wiki/International_Lease_Fin

ance_Corporation OCC Bank Accounting Advisory Series, BAAS, Topic 5 Leases

THANK YOU..