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22, , LEASING USAma 192, Byteh*uy holeld, , CONCEPT OF LEASING, , e a s i n g has, , emerged, , as, , tne, , recent, , termediate, leasing, , and long, , is an age, , old, , decades. In, , rew, , during, Loorpoiate enterprises, nas emerged, financing. ieasing, , and equity, , as, , to corporate, term tinancing, , one. The leasing, , equipments, plant, Leasing of, , long-term financing of, , ortant source of, , an, , and, , a, , third, , addition to debt, , important, , enterprises. The practice of, , of land and buildings, , macnineries, , development in India., , sourceof, , are, , were common., , comparatively of, , recent, , to USA In May, 1952 fenry, , financing gOes, trans ction., The credit of inventing lease, to handle lease, USA, the, in, corporation, 1963, Scholfeld set up a separate, wth a capital ors20,00o. pince, Corporation, themselves in direct leasing,, He founded thÇ USL leasing, to engage, have been alowed, its successful, Commercial banks, the, Kingdom following, In the, , early 1960s leasing, , United, , entered, , in the USA., , rapid development, The, pioneered in India durinc 1973) The, was, leasing, financial, in Chennai, The concept of, Chidambaram group in 1973, by, the, was, up, fr'st company, set, lease industrial equipmenty, India"jwas to, of, Company, of, the sole leasing, main activity thefLeasing, company was, the country this, in, For almost seven years, known as Twentieth CenturyJ, company, In 1980Janother leasing, finance companies joined, ompany, 1981, four, otners, into existence. In, came, companies, LeSing Company", leasing, performance of the existing, Yne, eny i, financial institutions made, the leasing industry. In 1980's, aa, Eer, Investment CorDoration oIld, a, then,, gDusiness.industrial Credit and, Since, offer_leasing in 1983, to, institution, Omedum, large-sized companies have entered the field 8 cao, d tonancial, , and, , motivated, , numder, , oay, , lat, MEANINGSt BanR 0 bOn, , ba sires the righ, , company, , Leasing is an arrang, under which a, is a contract, Lease, it., of, title, calleo tne, make use of the assets without holding thethe, of the asset, user, and, the, between pwnerof he asset (lessor), to the esses, the, OVE, , lessee whereby the, , 0gives, , an agree perod of time for, , the, , right, , to use, , called, , Consideration, , as, , 3g1), , asset, , the lease renta, , The, , iease, , inq us naSn 1986

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392, , BUSINESS FINANCE, , contract is, , pays the, , lease, , period, , a, , regulated, rent, , by, , the, , periodically, , of time. The rentals, , month. quarter, half-yearly, terms of amount and, , in, , lessee.( At, who, , the, , is the, , expiry, , legal, , of, , same.It, , A lease is, , is, , defined, , In the words of, , Lease, , is, , another party, , period, , as, , The lease rentals can also, , per, , the, , the lease periOd,, , owner of, , the asset., or, , a, , form, , profits, , and, , the assets, , In, , long, , the, , renew, , the use, , just, , the, , agreement. The lessee, regular fixed payments over, payable at the beginning or, end of a, , be, , may, , timing, , given an option to buy, that provides a, firm_with, the, , and conditions of, , to the lessor as, , yearly., , or, , is, , Owning, , terms, , term, , cash, , be, , flow, , agreed both, , position, , reverts back to, , the, , of the, , lessor, , lease contracts, the lessee, , lease, Thus, leasing is an, arrangement, and control over, assets without buying and, of, , renting assets, , followS, , as, , James C. Van Horne, , contract, (lessee) the, a, , whereby, , the owner of, , exclusive right, , of time in return for the, , payment, , Equipment Leasing Association, , an asset, grants to, to use the asset, for, an, usually, agreed, of, , (lessor), , rent., , of UK, , A, , contract between lessor and, lessee for the hire of a, from a manufacturer or, specific asset, of such assets, vendor, the, by, lessee. The, lessor retains the, of, , selected, , ownership, , the, , asset, Of the asset on payment of, specified retain, STEPS INVOLVED IN LEASING, The, , The, , lessee has possession and, over a, period., , TRANSACTION, , steps involved in a leasing transaction, 0 First, the lessee has to, decide the, , supplier., , He has to, , summarised, , are, , asset, , decide about the, , as, , followS, , required and select, design specifications,, , the, , the lessor., of the lease such as,, , Tne, , price, warranties, terms of, delivery, servicing etc., 2. The lessee, then, enters into a lease, lease, agreement with, agreement contains the terms and, , conditicns, , ), , the lease, period of the, asset., () the time and amount of particular, , (1) details, , rental, , regarding payment of, , insurance, ()details, , of, , and, , use, , payments during, , cost of, , other expenses., , the lease, , the, , perioo, , maintenance and repairs, taxe, , any option to renew the lease, , or to purchase, the asst, period., 3. When the, lease, the, agreement is signed the lesser makes, manutacturer after the asset, payme, has been delivered and, accepted by tne icosee., , at the, , end of the, , TYPES OF LEASING, There are, , basically, , () Financial Lease, (i) Operating Lease, , two, , types, , of, , leasing, , arrangements

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393, , LEASING, , Financial Lease, , In a financial lease, the lessee selects the equipments, settles, t h e pric, , of sale and arranges with a, , leasing company to buy it. [He enters, , io irrevocable andnor-cancellable pontractual agreement with the leasing, ampan, , The lessee úses the equipment exclusively, maintains it, insures and, , ais the atter sales services and warranty backing it. He also bears the risk, d Obsolescence as it stands committed to pay the rental for the entire lease, , A financial lease is usually characterised by the following features, (a) Under a fiinancial lease, the rate of lease would be fixed based on, the kind of lease, the period ot lease, periodicity of rent, the rate of depreciation and other tax benefits available., , payment,, , (b) Financial lease is usually non-cancellable by the lessee prior to its, expiration date., , (c), , A, , inancial lease is for, , a longer period of time., provides the lessee an option of renwing the lease, for further period at a nominal rent. The lessee also has the option, to buy the, equipment at a predetermined value or at fair market, , (d) A financial lease, , price., , (e) It implies that within the lease, period the lessor recovers his, investment in the asset, , alongwith, , an, , acceptable, , rate of return., , 2 Operating Lease, A", , Operating, , lease is also known, , ESe, Under this lease,, , s than, , the full, expected, 0 r a limited, , the, , Service lease, Ishort-term leasel or, , contractual period between lessor and lessee, , economic, , period, may, , as, , be, , a, , life of, , month,, , equipment., , This means that the, , six months, , Operating lease is usually characterised, 9iS a short-term cancellable lease,, essor but, , by, it, , or, , few, , years., , the, , followin9 teatures., implies higher risk to tne, , higher lease rentals to the lesseee., ESSor is responsible for maintenance,, the asset.,, , Operating, lease is cancellable at, (d) The, lessee has, as, the option, lease period. tne, option, , As the period, he ss, SSet. The, , of an, , of, , insurance and taxes o, , short nOGE, , renewing, , the lease, , lessee, after the expiry, , o, , operating, , lease is less than the useful life of, does notoperating lease, of the, , necessarily amortize the ong, to make, leases or sell the asse, further lease, investment and expected rae return., , lessor has, , COst of, , t

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D l u alcon, , lax Eeno, , nihs, , 394, , adtLion, , hadge aue, , ailoalule a, , atulcon, between, , Pi_tinction, , Le, , Finanglal, , a, , lease, , and Operating, , Capita, Financial Leaseubse, A financial, , lease is' like, instaliment loan. It is a, , Committment, cost of the, over, , a, , to, , an, , legal, , pay, , for, , the entire, , equipment plus, , specified period, , interest, of time., , a, , series of, , The lessee commits to, , tO, , BUSINESS FINANCE, , An, , Lease, , Operating Lease, operating, , ment. The, , paying, , lease, lessee is, , is, , a, , rental, , agree-, , not committed to, more than the, original cost of, , equipment during contractual period., , payment which in total exceeds, the cost of the, It, , excludes, , equipment., provisions, , for, , maintenance or taxes which are, , paid separalely by the lessee., 3. Financial lease contracts are, non-cancellable., , Operating, tenance, , lease, , provides, , expenses, , for, and taxes of the, , main, , lessor., , Operating, , lease contracts are, able either by the lessor or, , cancell, , lessee., 4., , The risk of obsolescence is, assumed by the lessee., , 5. Financial Lease contracts, from medium to, , rangesS, , long-term period., , The, , leasing company, , by, , the, , assumes, , obsolescence., Operating lease contracts ranges from, intermediate, , to, , short-term, , period, , Lean, , 6. Financial lease involves a financial, , In case of operating lease the financial, , a, , k, , commitment similar to a loan by, , imerN, , a leasing company/Tt places the, , commitment is restricted to regular, , lessee in a position of borrower., , rental payment.)-KenlaaQDe, , 7.KAircrafts land and(building heayy omputers.automobiles) jbffice equip, machinery are leased., mentsetc are leased., , (8. In case of financial lease the lessor, fulfils financial function., , In Case of operating lease the lessor, fufills service function., , FORMS OF LEASING, he, , following, , are the, , important, , kinds of financial lease, , arrangernens., , (a) Sale and lease back, Under this, , type of lease,, gets it back on, , firm, , which, , has an asset sells it to the, asset is generally sold at its, mark, value. The firm receives the sale price in cash and gets the right to use, , conpany, , and, , asset, , dung the lease period., lessor.(Thetitle of the asse, agreemernts, , are on, , a, , leasing, , lease.The, , The firm makes, vests with the, , periodical, , rental, , lessor, , payment, , to, , n, , Most of the lease, anet-net basis which means that the lessee pays a, , Daun, , maintenance expeNSes, property taxes, and insurance.In some cases,, lease agreement, of lease., , allows the lease to, , repurchase, , the, , propeity, , at the, , terminano

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7 h o ay l, 395, , LEASINS, , Denelncial to both lessor and, lease back agreement, lessee, The sale and, The lessee gets immediate cash_wnicn Decomes avaiable for working capital, , s, , tax benelitsi (Retail stores, office, dinas, multupurpoSe industnal Duiding ana snOPping centres are linanced, , turther expansSion, , for, , and, , essor, , geiS, , under this method, , (b) Direct Leasing, In contract with sale and leaseback, under direct leasing a firm acquires, , already, , asset that t does not, the use of an, ether from, , the manufacturer directly, , or, , own. A, , direct lease may be, , through the, , arranged, , leasing company. In the, , as the lesser while in the second case, tne, purchase of the asset for the leasing company, the lessee firm arranges, enters into an, esson from the manuiacturer or tne supplier and alsO, asset., arrangement with the lessor tor the lease of the, first case,, , the manutacturer, , himsel acts, , In direct leasing finance, companies and independent leasing companies, clients who, , for, , their, enters into the business of acquiring property, the financial, assets for their business purposes. Once, in need of certain, and, a direct lease is arranged under usual terms, institution owns the property,, , usualy, , are, , condtions., , (C)Leverage Lease, , A leverage lease is used for financin9 those asset which require huge., , capital outlay!, crore, , from, , generally varies, , Rs. 50 lakns to RS. 2, , agreement, the lender. A leeraged lease, three parties, the lessee, the egeeand, for purchasing the asset, under which the lessor borrows funds, , and has economic, , mwolves, IS an, , The cost of asset, , life, , of, , 10 years or more. The leverage, , agreement, third party called lender which is, , lease, , finance, , company, asset and the lease rentais, E Oan is uSually secured by the martgage of the, loan is paid back out of the lease rentais, DE Teceved from the lessee.yThe, amounts to the lessor, the lessee by paying only the excess, by, Usudauy, E irectly, and the lender Is, the, , oma, , essor, , acts as the owneras well as, , usually, , bank, , a, , or a, , poTTOwe, , E Dank, financial institution orinsurance company, , ended and Back-ended LE, o Primary and Secondary Lease (Frontlease, rentals are charge0 n, , primary, , tnat, , during, , the, , and, , secondary lease, the, , lesspr recovers the, , cost of the asset, , and accepd provided, , secondary lease, , the initial, , Is, , period of the lease and thena a, primary perioo, at nominal rentals.n other words, the rentas charged in the, of leasea i s, of the secondary period. This form, nat, is also kn, Saiso, known as front-ended and back-ended ase., , a s e arrangement, , Advantages of Lease, lowing9 are the advantages of teasing to, ., , Permits, , alternative, , firm with the, use and, , use of, , funds-, , control ove, , O v e r, , asset, , proviaes, arrangement, , leasing, without, , incurring, , nug, , capital