Leasing
Nodira Vahobova
Leasing

Leasing, as a financing concept, is an
arrangement between two parties, the
leasing company or lessor and the user or
lessee, whereby the former arranges to
buy capital equipment for the use of the
latter for an agreed period of time in
return for the payment of rent.
Definition
“
Lease is a form of contract transferring
the use or occupancy of land, space,
structure or equipment, in consideration
of a payment, usually in the form of a
rent.”
 --- - Dictionary of Business and
Management
Leasing as a Source of
Finance
 Leasing
is an important source of finance
for the lessee. Leasing companies finance
for: Modernization of business. Balancing
equipment. Items entitled to 100% or 50%
depreciation. Assets which are not
financed by banks/institutions
Types of Lease
 Also
known as Capital Lease, Long-term
Lease, Net Lease and Close Lease. It is like
an installment loan. In a financial lease,
the lessee selects the equipments, settles
the price and the term of sales and
arranges with a leasing company to buy
it. He enters into a irrevocable and noncancellable agreement with the leasing
company. Land & building, office
equipments, heavy machinery are leased.

Also known as Service Lease, Short-term
Lease or True Lease. It is like a rental
agreement. In this lease, the contractual
period between b/w lessor and lessee is
less than full expected economic life of
equipment. Contract period ranges from
intermediate to short-term. Contracts are
usually cancellable either by the lessor or
by the lessee. Computers, automobiles,
etc. are leased.

A leverage lease is used for financing those
assets which require huge capital outlay. The
leverage lease agreement involves three
parties, the lessee, the lessor and the lender.
The loan is generally secured by mortgage of
the asset besides assignment of the leased
rental payments. In leveraged lease, a wide
range of equipments such as rail road, coal
mining, pipe lines, ships, etc. are acquired.
 Under
this type of lease, a firm which has
an asset sells it to the leasing company
and gets it back on lease. The asset is
generally sold at its market value. The sale
and lease back agreement is beneficial
to both lessor and lessee. Retail stores,
shopping centers, etc. are financed
under this method.
 Also
known as International Leasing, and
Transnational Leasing. It relates to a lease
transaction b/w a lessor and lessee
domiciled in different countries and
includes exports leasing. In other words,
the lessor may be of one country and the
lessee may be of another country.
Advantages of Lease
 10
Permit alternative use of funds. Faster &
Cheaper Credit. Flexibility. Boon to Small
Firm. Protection against Obsolescence.
Facilitates Additional Borrowings. Hundred
Percent Financing.
Disadvantages of Leasing

11 Lease is not suitable mode of project
finance. The cost of financing is generally
higher than that of debt financing. Certain
tax benefits/incentives such as subsidy may
not be available on leased equipment. A
manufacturer who wants to discontinue a
particular line of business will not in a position
to terminate the contract except by paying
heavy penalties. If the lessee is not able to
pay rentals regularly, the lessor would suffer a
loss particularly when the asset is a
sophisticated one & less liquid.
 Thanks
for your Attention