lease financing , types of lease , selection criterion of leasing , advantage of leasing , disadvantages of leasing

2. MD. AZIZUR RAHMAN
DEPARTMENT OF BUSINESS ADMINISTRATION.

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.

5. Types of lease
Lease
Operating Lease Finance Lease Sales and Back lease

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.
Financial Lease:
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
back.

7. Supplier Lessee
Lessor
Information demonstration
After-Sales Services
Technology Choice

8. Loan
Lessor
Equipment
ownership
Medium
Usually Lessee
Usually lessee
Usually not
available
Lessor
Equipment
ownership
Low
Usually Lessor
Usually lessor
Usually available
Borrower
Chattel mortgage
on equipment &
additional
collateral
High
Borrower
Borrower
NA
Criteria Finance Lease Operating Lease
Legal ownership of
equipment
Securing the transaction
Equity Security Deposit
Responsibility for
maintenance & insurance
Risk
Cancellation Option

9. Bank Financing Lease Financing
In a Bank financing by
there are lender and
borrower
Bank financing does not
create any ownership.
Interest rate is lower in
case of bank financing.
Interest rate is paid for
bank financing
Bank financing is for
short term.
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
financing.
Lease financing is for long
term

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
Obsolescence
 Leasing Provides Fast and Flexible Financing
 Low Cost of Operation
 Tax Planning
 Lease creates the opportunity for buy the asset
after the lease period

12. DISADVANTAGES OF LEASING
 Leasing is not Suitable Mode of Finance to
Project Finance
 No Depreciation Allowances
 Leasing may Involve Higher Cost