List and explain the various types of financing suitable for that project.docx

There are two types of lease financing financing

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regular monthly payment within a stipulated lease period . There are two types of lease financing . Financing lease – cannot return the asset or refuse to pay within the lease period . Operating lease – option to return equipment upon giving due notice to owner . Finance leasing allows the Lessee to take the asset with risks and rewards attached to the property on the same basis as an owner.The lease is generally non-cancellable for a fixed
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period, during which time the Lessor can recover total investment through lease rental (periodical payments). The “secondary period” is shorter, and the repayments are less, often called the peppercorn payment or rent. Lease finance is favored by small business enterprises (SME), and individuals, where cash flow is the lifeblood of the firm. A monthly payment, even with interest attached, is often the better option than using cash to purchase capital items. It allows the lessee to purchase an expensive item or capitalize the business over a period, thus alleviating the necessity of finding a significant amount of upfront cash. 3. Term Loans : The company needs to pledge assets as collateral; and make regular payment to repay the loan and the interest changes . Higher risk granting loan, therefore, higher interest rate . Term loans work as fully revolving credit facilities, which help fund a business between the time it has to pay for the purchased goods, and the time when the firm receives the funds from the sale of those goods. Once the facility is agreed and put in place, the borrower presents his drawdown documentation. Any drawdown documentation is agreed in advance and stipulated in the facility agreement. This normally includes invoices and transport documents. Depending on the type of agreement, the lender may or may not have control over the transport documents.
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Term loans are an important and well-established trade finance technique. Particularly suited to wholesalers and manufacturers, they can be used for regular or one-off purchases of goods and raw materials.
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  • Spring '17
  • Ms Lisa Foo Chin Yee
  • Debt, Finance lease

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