Introduction to Leasing PDF

Chapter (1) Introduction to Leasing 1- What is leasing ? 2-types of lease. 3-Rental contract and leasing contracts. 4- What is sale- leaseback? 5- How do you select a financial leasing company? 6- How lease financing can benefit your business ? 7- challenges and risks of lease financin...

Chapter (1) Introduction to Leasing 1- What is leasing ? 2-types of lease. 3-Rental contract and leasing contracts. 4- What is sale- leaseback? 5- How do you select a financial leasing company? 6- How lease financing can benefit your business ? 7- challenges and risks of lease financing. In the previous lecture  Leasing is; - A contract , agreement. - between the lessor and the lessee. - on Fixed assets (physical or intangible). - These assets owned by the lessor. - specific period. - periodic payments. - A high level of flexibility. - a non-banking financial activity. - practiced by financial leasing companies. - regulated by the FRA. - an alternative source of financing. - There are two types of leasing contracts: financial leasing and operating leasing. - Lease contracts differ from Rental contracts as lease contracts give the lessee the right to buy the leased asset, re-lease it, or return it to the lessor.  4- What is sale- leaseback? I. Definition: A sale and leaseback is a transaction where the owner of an asset sells the asset and then turns around and leases the asset back from the person who purchased it. - sale- leaseback is one form of leasing whereby a company would sell one of its fixed assets to a leasing company on condition it is leased back to the seller. -Thus, the company will continue to use the production asset and get cash proceeds from sale of the asset to be used to finance operating capital. - The rental of the leased asset is paid over a period of several years. II. Who Uses sale- leaseback and Why? -The most common users of sale-leasebacks are companies with high-cost fixed assets. - Companies use leasebacks when they need to utilize the cash they invested in an asset for other purposes but they still need the asset itself to operate their business. III. What are the benefits of sale- leaseback? A. Potential Benefits to Seller/Lessee... 1- Getting immediate cash finance to buy raw materials and production inputs, and Continuing production processes without interruption. 2-Can provide additional tax deductions 3-Enables a company to expand its business. 4-Can help to improve the balance sheet. 5-Limits volatility risks of owning the asset 6- Regaining ownership of the leased asset at the expiry of the term of the financial leasing contract. B. Potential Benefits to Buyer/Lessor... 1-Guaranteed lease. 2- A fair return on investment (ROI). 3-Stable income stream for a specified time.  5- How do you select a financial leasing company? 1. Contact of the financial leasing companies to submit their offers regarding the asset required to be leased. 2. Study and compare such offers to select the best based on several factors and considerations. 3. The cash price of the asset. 4. Total rental and the return rate used for calculating it (payments). 5. Additional expenses that the lessee must bear (maintenance, insurance, … etc.) 6- Does the company obligate the lessor to get insurance for the asset from a certain insurance company? 7- How far is the company specialized in leasing such kind of assets or dealing with a specific category of lessees? 8- Any other services provided by the leasing company. 9- Term of lease and conditions for periodic payment of rental. 10- The extent of ease and flexibility of dealing between the company (lessor) and the client (lessee). 11- The existence of additional guarantees that the company requires from the lessee. 12- The purchase price of the leased asset at the expiry of the lease contract. 6- 7 -