Leasing
Back than the firm generally acquire the asset and use it as it's owner for the purpose of production and profit generation it involve Heavy taxation, Inflation, Economic uncertainty, and need Big investment .Due to this the firm look for new ways and the new trend is called LEASING
leasing is a financial agreement which is favored by many firm and small business in the 21 century .Due to it's simplicity, Flexibility
The firm need to grow with Low investment, Mass expansion, Diversification & Modernization complexity so leasing is the best option the firm see
HISTORY
Leasing date back to 200BC when Romans had developed a full body law relating to lease for movable and immovable property .However the new way of leasing has started in the year 1877 when the Bell telephone company began renting telephone in the U.S.A
In 1930s the railway industry use leasing service for it's rolling stock needs
In may 1952 Henry scholfeld set up a separate corporation in the U.S.A to handle leasing transaction .He found the US leasing corporation with a capital of $20000 since 1963 commercial bank have been allowed to engage themselves in the direct leasing
In the year 1960s the leasing entered in the U.K. due to it's growth in the U.S
leasing as a financial agreement between the two parties where the (owner) lessor
and the lessee (user) of the asset it an agreement where the lessor transfer the ownership of the property to the lessee for the period of time in return for the payment of rent .The rent are predetermined and payable on monthly basis or yearly
Lessor is the true owner of the property
Lessee is the temporary owner of the asset
lessor transfer the risk and maintain charge insurance along with the asset to the lessee over the period of time leasing also give the lessee to explore the economic value of the asset for the agreed period
James C, Van Horne defined
" Leasing is a contract whereby the owner of an asset grants to another party the exclusive right to use the asset usually for an agreed period of time in return for the payment of rent "
European leasing association defines
" a contract between a lessor and a lessee for the hire of a specific asset selected from a manufacturer or vendor of such asset by the lessee .The lessee can have possession and use of the asset on payment of specific rental over period "
Leasing types :
There are many type of leasing where the business enter into a agreement which suit it's best for them a Big concern which want a expand it's market and expand the
company want a long term lease for the business idea
company want a long term lease for the business idea
The business which looking for quick profit and explore the economic value if the asset is certainly looking for the short term lease .So every business need to adopt a idea and enter into a lease which suit there business plan
(1) Financial lease :
It's a capital lease which is a long term lease (net lease) it is for more than 10year it's a irrevocable and non-cancelled agreement where the lessor transfer all the risk involve in the asset to the lessee like maintains, insurance, repair . The lessee is responsible for the asset loss and and damage in the middle of the period
in the financial lease the risk of obsolescence is transfers to the lessee and the lessee have the option to buy the asset at the end of the period .In the financial lease the rate of interest is fixed the interest rate is low and the lessee may agree to pay additional interest on profit if the equipment are involved
( the financial lease is suitable for big firm which the want a fixed agreement and they can operate the way they want )
(2) Operating lease :
An operating lease is also know as service lease it a short term lease
which is normally shorter than the economic value the life of the lease is less that the asset life so the short term lease is a lease of Machine, Vehicle, Equipment .Which the company use for its daily use for operation
The risk of obsolescence is remain with the lessor due to the short period of time
The operating lease is a short time lease a firm acquire the asset and use it for day to day business operating the asset deprecation may be charged at the end of the contract
The lease may be cancelled in the middle of the period
(3) leverage lease :
It's a lease which used to finance those asset which need huge capital investment to buy those asset when a big firm want to buy a big asset Example; (airplane, cargo ship, transportation vehicle). And other big operating asset the firm look for leverage lease for finance
In these lease there are three parties the LESSEE, LESSOR, LENDER
lessor borrow fund from lender to acquire the asset and lease those asset to lessee and pay the lender the money as installment for money borrowed
(lender) pay the half the value of asset
( lessor) acquire the asset by paying other half
( lessor) lend those asset to lessee for rent payment or yearly payment and pay the lender interest on asset financial percent
finance of leverage lease ( the lessor make the 40% to 20% of financial payment and the other half is maid by the lender ) lessor is the owner of the asset after acquire of asset
(5) Sales back lease :
Under this lease the the firm sell the asset to the party at face value in return the party lease the asset to the fire on the basis of payment this is done when the firm facing the liquidity crises the firm generally sell the asset to meet its requirement of finance
the sales back lease is beneficial for both lessor and lessee where the lessor get the immediate cash and the lessee get the asset at face vale
(This type of lease is only good for asset with appreciation value like land, gold) the asset which don't suffer depreciation
(6) Cross border lease :
Cross border lease is a type of lease where the transaction is between two countries it's a lease which lease big machine from one country to another the it general done between developed country and developing country
Germany lease is some of the big heavy lifting crane to Asian country for some period of time and a .Airplane manufacturing firm Boeing lease it's plane to other air service company it is a international lease where the two different country firm involve in contract
(7) open end and close end lease :
Open end is when the deprecation vale of the asset is not charged to the lessee at the end of the lease period
Close end is when the deprecation vale of the asset is charged to the lessee at the end of the lease period
