Leasing is a process by which a firm can obtain the use of a certain fixed assets for which it must pay a series of contractual, periodic, tax deductible payments.
4. Histroy:
Leasing was introduced in Belgium in November
1961 following the creation of the Leasing company,
the S.A. LOCABEL. It took however another 6 years
for leasing to be given a legal status through the law
promulgated on November 10 1967 (Royal Decree n°
55). From its birth in 1961, leasing has gone through
the following evolutionary phases.
5. Conti…
From 1961 to 1980: leasing did not grow in a spectacular manner
mostly due to the fact that investing without becoming the owner the
goods was a psychological barrier difficult to overcome, and because of
other financial solutions companies were more familiar with.
From 1980 to 1993: Intensifying competition, deteriorating economic
environment and the slowdown of investments had a major impact on
leasing: the market shrank by 11% in 1992 and 18% in 1993. These
unfavorable factors forced many leasing companies to review their
strategy as they could reach neither their turnover targets nor their
breakeven
point.
This difficult period was the trigger for a major market restructures: many
leasing companies simply stopped their activities or were sold off.
6. Conti…
From 1994 to 1999: In 1994, the leasing marked
turned around: sales figures went up as major
growth returned. This favorable trend was
confirmed
in
1999.
During the same period, the leasing market, and
particularly the car leasing market progressed from
financial leasing to operational leasing providing
more integrated services.
8. Regulations for
establishing Leasing
Company
He has not been associated with any
illegal banking business, deposit taking
or financial dealing.
He and the companies in which he is a
director or major shareholder, have no
over-due
loans
or
installments
outstanding towards bank or NBFIs
9. Conti…
Neither he nor the companies in which
he is a director or major shareholder
has defaulted in the payment of taxes
as on the date of application
He has not been sponsor, director or
chief executive of a defaulting cooprative finance society or finance
company
10. Conti…
He has never seen been convicted of
fraud or breach of trust or of an offence
involving moral turpitude or removed
from service of misconduct.
12. Kinds of Leases:
Finance Lease:
Operating lease:
Under a finance lease, the finance
company owns the asset throughout and the agreement
covers a set period – considered to be the full economic life
of the asset.
An operating lease runs for less than
the full economic life of the asset, and the lessee is not liable
for the financing of its full value.
13. Conti…
Capital Lease:
Direct Financing Lease (Direct Lease):
Type of lease classified and
accounted for by a lessee as a purchase and by the
lessor as a sale or financing.
A non-leveraged lease by a lessor (not a
manufacturer or dealer) in which the lease meets any
of the definitional criteria of a capital lease, plus
certain additional criteria.
15. Source of Funds
Capital Reserves: Capital reserve is
one of the most vital source of funds for
leasing.
Borrowings from financial institutions:
E.g. banks, building societies, credit
unions, trust companies
Inter-company borrowings
16. Uses of Funds
Cash and Bank Balances: Amounts held in the
bank and in cash. Found in the Current Assets section of the
Balance Sheet.
Investments: E.g. such as factories, machinery, houses,
and goods inventories.
Receivables
Debt Factoring
Hire Purchase
18. Cost Benefits
Less capital-intensive than purchasing
Safeguard cash flow
Capital assets may fluctuate in value. Leasing shifts
risks to the lessor.
Leasing may provide more flexibility to a business
which expects to grow or move in the relatively short
term, because a lessee is not usually obliged to
renew a lease at the end of its term.
19. Conti…
Depreciation of capital assets has different tax and
financial reporting treatment from ordinary
business expenses. Lease payments are
considered expenses rather than assets
In some cases a lease may be the only practical
option; for example, a small business may wish to
open a location in a large office building within tight
location parameters.