FINAL LEASE AND HIRE PURCHASE

8/7/2019 FINAL LEASE AND HIRE PURCHASE

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Sources Of Finance The term Source implies the agencies from which fund is

procured.

This source of raising finance can be classified as into the followingcategories on the basis of period for which fund is required .

Long term

Medium term Short term


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Medium-Term Finance To finance a business for a period of more than a year but less than

10 years.

Also called as Intermediate financing.

Usually required for -

Expansion or modernization of existing plant.

Purchase of assets or costly raw material.

For repayment of short-term loans.


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Various Sources Preference shares

Debentures/Bonds

Public deposits/Fixed deposits for a duration of three years.

Commercial banks Financial institutions

State financial corporations

Lease financing

Hire-purchase financing or Installment sale


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Lease Financing A Lease is a transaction in which a party owning an asset/equipment

provides the asset/equipment for use to another party for an agreedperiod of time and in turn the party using the asset makes periodicpayment to the owner of the asset.

The lease can be a long term or medium term source of financedepending upon the type of equipment:

For eg. Land on lease

Lessor : Owner of the asset

Lessee : User of the asset under lease contract


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Steps in Leasing Transaction Deciding the asset and the supplier

Terms & Conditions

Basic lease period (irrecoverable)

Timing and amount of payment

Details regarding repairing & maintenance

Option to renew or purchase at the end

Signing the deal

Lessor pays the manufacturer and assets go to lessee


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Types of Lease

FinancialLease

OperatingLease

LeverageLease

Sale & LeaseBack And

Direct LeaseLevarage

Lease

Domestic andInternational

Lease


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Financial Lease


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Operating Lease

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Sale and Lease back

Owner sells the property to the leasing company which leases it

back to the owner.

Dipartite Lease : involves lessor and lessee Tripartite Lease : involves lessor, lessee and equipment supplier.

Direct Lease


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Leveraged Lease

It involves lessor, lessee and lender. Lessor puts in some money required to purchase the asset and

borrows the rest from a lender.


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Domestic Lease International Lease

All the parties involved are

domicile of the same country.

Equipment suppliers domicile

is immaterial.

Parties involved are domicile of

different countries.

Two types:

1. import lease

2. cross border lease


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Advantages of Lease Financing

To the Lessee: To the Lessor

Financing of capital goods

Less costly

Simplicity

Tax benefits

Full security

Tax benefits

High profitablity

High growth potential


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Limitations Restriction on use of equipment

Loss of residual value

Long Term Expense

Maintenance


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FIRST LEASING COMPANY OF INDIA

First Leasing was incorporated as the First Leasing Company of theCountry on September 10, 1973. Mr Farouk Irani promoted the

Company.

The major clients are CitiBank, Johnson & Johnson, Volvo, Seimens

Public Communications, ABB, ANZGrindlays, IDBI Bank, TELCO, KnollPharmaceuticals, Bayer among many other names.

The NAELB is the only professional organization for the leasing

industry that holds its member to a Code of Ethics


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Industries Served IT and ITES

Banking

Financial Services

Consultancy

Telecom

Engineering

Energy

Data Research

Agro Products

Hospitality Industries


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Key Products Software leasing

Green energy and Windmills

Corporate jets

Cross border leasing

Leasing of telecom towers

Corporate loans

Leasing of high value rare cars such as the Mercedes Benz, the

Volvo, BMW and the Lamborghini


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BLME (Bank of London and the

Middle East) A US manufacturer of white goods required finance for the

acquisition of new forklift trucks that would be used at the

manufacturers various warehousing facilities. BLME provided an

operating lease facility in excess of $20 million.

BLME negotiated a finance lease with a US railway operator for the

installation of cranes at one of its freight terminals.

BLME funded a fleet of truck mounted drilling rigs for a US natural

gas producer.


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Hire Purchasing Hire purchase is used to buy expensive

items which a person cannot afford to pay

outright: e.g. a car

A down payment is usually paid and the balance is paid over severalmonths (monthly installments).

Goods are let out on finance by a finance company to the hire

purchaser customer

Buyer is required to pay an equal amount of periodic installments

during a given period.

Ownership transfers at the payment of the last installment


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Process in hire purchase The Dealer, contracts with finance co. for financing his hire purchasedeals.

The customer selects the goods for HP, and dealer arranges for thecomplete set of documents.

Down payment by customer on completion of proposal form. Dealer sends documents to finance co. with request to purchase the

goods, and accept the HP transaction.

The finance co. signs the agreement and sends copy along with EMIdetails to dealer.

Dealer delivers the goods to the customer, property passes on to thefinance co..

Hirer pays EMIs, and on last payment , the ownership passes on tohim, with loan completion certificate by the finance co


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Hire Purchase vs Leasing

Hire purchase Leasing

The hire has the option to purchase thegoods

In leasing the lessee has no option to buythe goods

Is a method of financing business

assets & consumer articles

Is a method of financing business assets

only .

Depreciation & investment allowancecan be claimed .

Depreciation & investment allowancecannot be Claimed .

Only the interest is tax componentdeductible . Entire lease rental is tax Deductible

Hirer enjoys the salvage value ofthe asset

Lessee does not enjoy thesalvage value of the asset


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Development of Hire-purchase took two forms: consumer durables

and automobiles.

Consumer durables hire-purchase was promoted by the dealers in

the respective equipment. Thus, Singer Sewing Machine company,or Murphy radio dealers would provide installment facilities on hire-

purchase basis to the customers of their products.

The other side developed very fast - hire-purchase of commercial

vehicles. The dealers in commercial vehicles as well as pure

financing companies sprang up. The value of the asset being good

and repossession being easy, this branch of financing activity

flourished fast, although until recently, most of automobile financing

business was in hands of family-owned businesses.


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Companies providing Hire Purchase SREI International

Finance

Sundaram Finance

Cholamandalam Finance

Mahindra & Mahindra

GE Capital

Present industry order

Shriram Finance

Tata Finance

Countrywide Finance

Citicorp


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Bibliography http://india-financing.com/indo1.html

Ravi M. Kishore- 6th edition

Khan and Jain http://www.moneycontrol.com/company-

facts/firstleasingcompanyindia/locations/FLC
http://india-financing.com/indo1.htmlhttp://india-financing.com/indo1.htmlhttp://india-financing.com/indo1.htmlhttp://india-financing.com/indo1.html


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FINAL LEASE AND HIRE PURCHASE

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