3. Learning Objectives
Think Pro-actively regarding all factors in Leasing
and Equipment Financing
Evaluate All Lease Terms and Lease Pricing
4. Lease Financing
A contractual arrangement between lessor (Owner of
the asset) & lessee (User of the Asset) to grant the use
of specific fixed assets for a specified time in exchange
for payment, usually in the form of rent.
6. Operating Lease
Type of lease in which the period of contract is less than
the economic life of the equipment and the lessor pays all
maintenance and servicing costs.
A long-term non-cancelable lease, generally requiring the
lessee to pay all maintenance fees.
Sale and Back Lease:
An arrangement whereby one party sells the property to a
second party, and then the first party leases the property
on equipment &
Criteria Finance Lease Operating Lease
Legal ownership of
Securing the transaction
Equity Security Deposit
maintenance & insurance
9. Bank Financing Lease Financing
In a Bank financing by
there are lender and
Bank financing does not
create any ownership.
Interest rate is lower in
case of bank financing.
Interest rate is paid for
Bank financing is for
In lease financing there are
lessor and lessee.
Lease financing can create
ownership of asset.
Interest rate is higher than
the bank financing.
Rent is paid for lease
Lease financing is for long
10. Selection criterion of Leasing
Under the terms of the lease ownership of the property
effectively transferred from the lessor to the lessee.
Lessee can purchase the property or renew the lease at less
than a fair market price when the lease expires.
The lease runs for a period equal to or greater than 75%
of the asset’s life.
The present value of the lease payment is equal to or
greater than 90% of the initial value of the assets.
11. Advantage of leasing
Leasing Offers Cash Flow Benefits
Off the Balance Sheet Financing
Hedge against Risks of Inflation and
Leasing Provides Fast and Flexible Financing
Low Cost of Operation
Lease creates the opportunity for buy the asset
after the lease period
12. DISADVANTAGES OF LEASING
Leasing is not Suitable Mode of Finance to
No Depreciation Allowances
Leasing may Involve Higher Cost