To raise funds a company may-sell an asset which belongs to the lessor with whom the ownership vests from there on. Subsequently, the lessor leases the same asset to the company (the lessee) who uses it. The asset thus remains with the lessee with the change in title to the lessor thus enabling the company to procure the much needed finance.
6. Small Ticket and Big Ticket Leases:
6. Small Ticket and Big Ticket Leases:
The lease of assets in smaller value is generally called as small ticket leases and larger value assets are called big ticket leases.
7. Cross Border Lease:
Lease across the national frontiers is called cross broker leasing. The recent development in economic liberalisation, the cross border leasing is gaining greater importance in areas like aviation, shipping and other costly assets which base likely to become absolute due to technological changes.
Merits of Leasing:
(i) The most important merit of leasing is flexibility. The leasing company modifies the arrangements to suit the leases requirements.
(iii) It is an alternative source to obtain loan and other facilities from financial institutions. That is the reason why banking companies and financial institutions are now entering into leasing business as this method of finance is more acceptable to manufacturing units.
(iii) It is an alternative source to obtain loan and other facilities from financial institutions. That is the reason why banking companies and financial institutions are now entering into leasing business as this method of finance is more acceptable to manufacturing units.
(iv) The full amount (100%) financing for the cost of equipment may be made available by a leasing company. Whereas banks and other financial institutions may not provide for the same.
(v) The ‘Sale and Lease Bank’ arrangement enables the lessees to borrow in case of any financial crisis.
(vi) The lessee can avail tax benefits depending upon his tax status.
Demerits of Leasing:
(i) In leasing the cost of interest is very high.
(ii) The asset reverts back to the owner on the termination of the lease period and the lesser loses his claim on the residual value.
