The document discusses various types of financing arrangements including hire purchase, leasing, factoring, block discounting, and real estate financing. It provides definitions and key characteristics of each type. For hire purchase, it outlines the parties involved, ownership terms, obligations of hirers and owners, and types of hire purchase agreements. For leasing, it compares financial/capital leases to operating leases and sale-leaseback arrangements. Factoring is described as the selling of accounts receivables to obtain cash flow. Block discounting provides financing against portfolios of hire purchase and lease agreements. Real estate financing is project-based lending using property as collateral.

1. Noor Amira Binti Ramli 2013694044
Noor Effa Rizan Binti Rusdi 2013410822
Nurhasma Zalina Binti Che Mahd Nasir 2013273682

2. DEFINITION
“a letting of goods with an option to
purchase & an agreement for the
purchase of goods by installments”
A hire of goods under which the hirer(debtor)
has possession of the goods with an option to
purchase & an obligation to make payments to
the owner of the goods (usually the finance
company) every month for a period of time

3. PARTY
INVOLVE OF HP
HIRER
FINANCIER
/BANK
DEALER

4. CHARACTERISTICS
The owner has a
statutory right to
repossess the goods to
enforce the security.
A type of credit
arrangements
The hirer has every
intention to purchase &
become the owner of
the goods
Ownership does not
pass to the hirer until
he exercise the option
to purchase
A type of credit
arrangements
Ownership does not
pass to the hirer until
he exercise the option
to purchase
A type of credit
arrangements
Ownership does not
pass to the hirer until
he exercise the option
to purchase

5. OVERVIEW
Finance company purchase
goods from supplier
10% down payment; 90%
financing
Hirer agree to pay installment
within an agreed period of time
Ownership of the goods belongs
to the finance company until the
hirer pays all the installments
plus interest

6. CATEGORIES
Consumer HP
Commercial/
Industrial HP
Individual customers
for the purpose
of purchasing
consumer goods
Business customers for
the purpose of
purchasing fixed
asset

7. HP AGREEMENT-SEC 4C OF THE HP ACT
1967
1. Description
2. Time period
3. Number of installment & time of payment
4. Amount of installment
5. Who & the place of payment
6. Where the goods to be located
7. Cash price of the goods
8. HP price
9. Deposit amount
10.Reasonably comprehensive statement of the
parties’ rights
11.The right of the hirer to terminate contract
12.A guarantor
13.Insurance coverage

8. 1. Pay the hirer installments
2. Pay interest on overdue installment
3. take reasonable care of the goods
4. Inform the owner where the goods will be
kept
5. A hirer can sell the products if & only he has
purchased the goods
OBLIGATION HAVE TO FULFILL BY THE
HIRER

9. TYPES OF
HP
Direct HP
Direct collection with
recourse to dealer
Schedule collection – agency

10. DIRECT HP
Direct dealing whereby
an appointed dealer
makes an offer to
purchase goods
Hirer approaches a finance
company for financing & if
accepted, finance company is
responsible for collections
from the hirer over a specified
period of the loan
Once accepted, finance
company bears the full
risk of the loan & entire
credit risk
Duty & responsibility of
the finance company to
process the HP
transaction

11. 3. An agreed rate of
commission is
payable to the dealer
upon full or early
settlement by the
hirer
4. Finance company
responsible for the
documentations &
collection of rentals

12. Schedule
collection –
agency
1. The dealer merely
acts as an agent of
the finance company
2. A master agreement
should be signed by
finance company with the
dealer together with a
guarantee agreement
3. Whether or not the dealer
collects from the hirer, the dealer
has to promptly remit the
installments to finance company

13. RIGHT TO
TERMINATE THE
AGREEMENT
To forfeit
the
deposit
To retain the
installments
already paid and
recover the
balance due
To
repossess
the goods
To claim
damages for
any loss
suffered
OWNER CAN

14. Leasing
It is a contractual
agreement between a
lessor and a lesse
It is also alternative to
purchasing the assets.
Period: 1 to 5 year
Some lease at the end of the
lease term provide an option to
purchase equipment at a lesser
amount

15. No large outlay
Allow to use
better
equipment
Preserves credit
lines
Increase
purchasing
powers
Provides fixed
rate financing
Leasing
conserves
working capital
Provides option
at the end of
lease term
Advantages of Leasing

16. 1. Lessee identify the equipment that he wants
2. Lessee enquire the price from manufacturer or supplier
3. Apply to lessor to finance the purchase of the equipment
4. Lessor assess the credit worthiness of the lessee
5. Lessor purchase the equipment & allow lessee the exclusive use of
the equipment
6. Lessee pays lessor periodic rental for a specified period
How leasing works?

17. No
ownership
Long term
expenses
Cost of
maintaining
the asset
Disadvantages of Leasing

18. Type of
Leasing
1. Financial
or capital
Lease
2.
Operating
Lease
3. Sale and
Leaseback
Type of Leasing

19. 1. It is non-
cancellable
contractual
agreement between
a lessor and a lessee
2. Leasing company
recover full cost of
equipment + charges
over time of period
4. Customer
responsibility for
maintaining the
assets.
3. End of period, the
leasing company
usually agree to
secondary lease period
in return reduced
payment.
5. Is customer wishes
to stop using the
equipment, it must be
sold second hand to
an unrelated third
party
1. Financing or Capital Lease

20. Advantages Disadvantages

21. Asset cost = RM 50 000
Lease Financing = RM50 000
Lease Period = 3years
Interest Value =10% per asset
Monthly Lease Payment
= RM50 000 + (RM50 000 X 10% X 3) = RM1 805.56

22. 2. Operating Lease or Service/
Maintenance Lease
•It is cancellable
contractual
agreement made
between a lessor
and a lessee
•Lessor
responsibility of the
maintenace
•The assets is as a
cost of profit and
loss account•Period: 2 to 3 year.
(Less than working life
of the machine)
•For example:
Computer
equipment,
automobile and
trucks.

23. Advantages
Pay for use the
equipment only not
ownership
Help achieve
desired treatment
or financial
reporting
purposes
Can return or
purchase that
equipment
Disadvantages
Higher interest
rate versus tax
exempt rates
Lessor will build in
property tax costs

24. Assets cost = RM50 000
Lease Financing = RM50 000
Lease Period = 3 Years
Interest Rate = 10% per assets and 12% residual value.
Residual value = RM10 000
Monthly lease Payment:
RM50 000 + (RM50 000 X 10% X 3) + (RM10 000 X 12% X 3) / 36 = RM 1 905.56

25. 3. Sale and Leaseback
It is arrangement involving
one party/ seller a property to
a buyer and buyer
immediately leases the
property back to the seller
Allow the buyer to make full
use of the property while not
having capital tied up in the
assets.
The owner of an assets
sell it to another party
and immediately leases
it back to use it for a
specified term
For Example: Buildings

26. Advantages
Sellers/user can control and
have utility of the property in sale
and leaseback
Sellers/ User can deduct from
tax for the lease payments as
expenses
Owner enjoys the potential of
appreciation in the value of the
property
Disadvantages
Tax maybe increase due owned
for length period or book value is
low than selling value
Loss of right to renovate the
property
Users may lose right of retaining
occupancy after end period of
lease.

27. 1. Description of
Assets
2. Cost of Assets
3. Time of Period
4. Renewal
option after end
of period
5. Lease rent
amount,
frequency and
payment mood
6. Option for
termination
(premature)
7. Terms of use
the assets
Lease Agreement
Document which bonds the
legal relationship between
Lessee and Lessor.

28. Selling a/c receivables or debtors’
accounts (in terms of invoices) to
a factoring company
Method used by a firm to
obtain cash when the
available Cash Balance
held by the firm is
insufficient to meet
current obligations.

29. Goods are delivered
by the supplier.
Original invoice plus
a copy raised by the
supplier is sent to the
factor.
Factor will advance
up to 80% cash of
the value of the
invoice to the
supplier; 20% retain
as security.
Factor will forward
invoice to the debtor
& responsible to
administer the AR.
At the end of credit
period, debtor pays
directly to the factor.
Factor will issue the
receipt.

31. Import factoring
Maturing with
assignment of
equity
Maturity factoring
Standard
factoring
TYPES OF FACTORING

32. Advantages of Factoring
Protection
against the
default in
payment by
AR/debtor
Maintenance
of the
receivables
a/c.
Improved
cash flow &
able to take
advantage of
trade
discounts

33. What is block discounting??
A credit facility for motor dealers, credit and
leasing companies to augment their working
capital by discounting blocks of hire purchase and
leasing agreement receivables for present cash
•Improve funding
•Better planning of cashflow
•Attractive and competitive interest rates.
•Flexible drawdown and utilisation up to approved limit
•No commitment or renewal fees on unutilised portion
from approved limit

34. Motor
vehicles
motorcycles
Consumer
durables
Leased
equipment
machinery
Financed goods

35. Involves land & structures built
upon the land
Can be classified as:
Residential properties
Agricultural land
Commercial properties
Industrial properties
Recreational properties
What is real estate?

36. Unique characteristics
Land is immobile
Lack of standardization
• Different values
Long life
• Varying age
Indestructibility
• Durable & stable investment
• More often appreciate with
time

37. Financing
Lending is given on a project
by project basis
Developer’s overall financial
condition is assessed
• Financial strength
• Experience
• Responsibility & ability to invest
the required equity
Project is both the
source of repayment &
collateral for the loan