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227 LESSON-15 LEASE FINANCING, HIRE - PURCHASE AND FACTORING Rekha Rani STRUCTURE 15.0 Introduction 15.1 Objectives 15.2 Concept of Lease Financing 15.3 Meaning of Lease Financing 15.4 Importance of Lease Financing 15.5 Types of Lease Agreements 15.5.1 Financial lease 15.5.2 Operating lease 15.5.3 Sale and lease back 15.5.4 Leveraged leasing 15.5.5 Direct leasing 15.6 Advantages of leasing 15.7 Leasing in India 15.8 Concept & Meaning of Hire purchase 15.9 Difference between Lease Financing and Hire Purchase 15.10 NSIC & Hire Purchase 15.11 Factoring 15.11.1 Factoring procedure 15.11.2 Merits 15.12 Summary 15.13 Glossary 15.14 Self Assessment Questions 15.15 Further Readings 15.0 INTRODUCTION In order to start and sustain a business one needs finance. In the unit one on feasibility study, you have already seen the process of estimating financial requirements. The process involved (a) making a list of all the assets (b) identifying the sources of supply (c) estimating the cost of acquisition when the assets are to be acquired on outright basis. Then investment requirements as well as entrepreneur’s fear will increase. To scare away the entrepreneur’s fear, the emphasis should be given to resources and not to the ownership. In this unit we intend to familiarize you with some important financial innovations i.e., leasing, hire purchase and factoring.
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228 15.1 OBJECTIVES After going through this unit you should be able to Describe the meaning of leasing Explain the role and importance of lease financing in economic development of a country Distinguish between the various types of leases Describe the meaning of hire purchase Distinguish between leasing and hire purchase Describe the meaning of factoring 15.2 CONCEPT 0F LEASE FINANCING Lease financing denotes procurement of assets through lease. The subject of leasing falls in the category of finance. Leasing has grown as a big industry in the USA and UK and spread to other countries during the present century. In India, the concept was pioneered in 1973 when the First Leasing Company was set up in Madras and the eighties have seen a rapid growth of this business. Lease as a concept involves a contract whereby the ownership, financing and risk taking of any equipment or asset are separated and shared by two or more parties. Thus, the lessor may finance and lessee may accept the risk through the use of it while a third party may own it. Alternatively the lessor may finance and own it while the lessee enjoys the use of it and bears the risk. There are various combinations in which the above characteristics are shared by the lessor and lessee. 15.3 MEANING 0F LEASE FINANCING A lease transaction is a commercial arrangement whereby an equipment owner or Manufacturer conveys to the equipment user the right to use the equipment in return for a rental. In other words, lease is a contract between the owner of an asset (the lessor) and its user (the lessee) for the right to use the asset during a specified period
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This note was uploaded on 12/24/2010 for the course BUS 54998D taught by Professor Drrekha during the Spring '10 term at DePauw.

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