Lease financing

Lease - definition

A lease is an agreement whereby the lessor conveys to the lessee , in return for lease rent, the right to use an asset for an agreed period of time.

A lessor is the owner of the asset where as lessee is the user of the asset .

The lease period may be for 1 hour , day , month, years .

Characteristics of lease

The Parties The Asset The Term The Lease Rentals

Importance of lease financing

Leasing industry plays a very important role in the economic development of a country by providing money incentives to lessee

The lessee does not have to pay the cost of asset at the time of signing the contract of lease

Types of Lease

Financial lease...

It is non-cancelable in nature. The lessee is responsible for the

maintenance of the asset leased. The lease generally provides for the

renewal of the lease on expiry of the lease contract.

It is taken for an long period of time ie 25 yrs , 100 yrs etc

Types of assets included under such lease are :

Ships Aircrafts Railway Wagons Land Building Heavy Machinery Diesel Generating Sets etc

Operating Lease...

The lease is cancelable at short notice by the lessee.

The lessee has the option of renewing the lease after the expiry of the lease period

Asset maintenance and insurance etc. is the responsibility of the lessor and he charges for the same.

It is a high risk lease to the lessor, as any time it may be cancelled by the lessee.

Operating lease is generally given for :

Computers Office equip Automobiles Trucks Other equip Telephones Walki-talki

Sale and Leaseback: Owner of the asset sells it to the lessor, and

gets the asset back under the lease agreement.

Ownership transfer from the original owner to the lessor, who again leases out the asset.

Immediate financing to the seller company, whose funds are tied up in the asset.