1. Summary
  2. Principle techniques of leasing
  3. Advantages of Leasing
  4. Disadvantages of leasing
  5. Sale and Leaseback
  6. Leasing in India


Leasing is the most vital development as a technique of procuring assets that have taken place within the field of finance throughout the past 5 decades though it had been on assets leasing initially throughout the past many years, numerous corporations are granting lease the majority forms of fastened assets.

Although nowadays, it’s not known to the US the quantity of hired instrumentation in use, even then it should be safely terminated that lease finance is one amongst the key sources of external finance that are being employed by several industries.

It is unimaginable to comment the explanations for its quality, i.e., whether or not it’s the results of monetary controllers’ want to conserve funds or, it arises from the exaggerated effort of the thus referred to as leasing corporations.

Principle techniques of leasing

Lease finance may be aforementioned to be a “contract between proprietor and tenant whereby the previous acquires the equipment/goods/plant pro re nata and nominative by the tenant and passes on the products to the tenant to be used for a selected place and in thought guarantees to pay the proprietor a nominative total in an exceedingly nominative mode at a specific interval and a nominative place”.

There are 2 principal techniques of leasing

  • Leasing instead of buying the assets; and
  • Sale and Lease Back.

Advantages of Leasing

Some authorities don’t settle for all the benefits of lease finance.

But the subsequent benefits are accepted by them:

  • Permits a lease to get the employment of property that he cannot acquire in the other way;
  • Provides facilities that are required solely temporarily;
  • Avoids the risks of obsolescence;
  • Relieves the user of maintenance, service, and body problems;
  • Provides a further supply of financing; and
  • offers lease flexibility.

Disadvantages, of leasing

  • High cost;
  • Loss of residual values;
  • the likelihood that a premium is going to be demanded very important instrumentation unless adequate care is taken once the lease is negotiated;
  • Inadequate analysis thanks to habitual leasing;
  • the dearth of accumulation of equity, that may have some adverse effects on future financing; and
  • numerous facilities are also lost at the top of the lease amount.

However, the validity of the higher than disadvantage depends on the assorted alternatives that ought to fastidiously be chosen while negotiating a lease agreement. Because, many factors directly have an effect on the leasing finance for alternations, e.g., rate of tax, the compensation schedule, the speed of interest, the tactic of depreciation, etc.

Sale and Leaseback:

Under a buying deal and Leaseback arrangement, a firm sells Associate in Nursing plus that it owns to a different party once more leases it back to the firm. The plus is typically sold-out at a market value and {also the} firm receives such quantity in money and also receives the economic use of assets throughout the lease amount. Periodic lease payments are created reciprocally and provide up the title of the assets.

As such, the proprietor can realize the residual worth, if any, at the top of the lease amount. Typically, the firm sells the plus to a financial organization, Insurance corporations, finance corporations, or institutional investors. it’s to be noted that almost all lease-back are on a net-to-net basis which suggests that the tenant pays all maintenance expenses as well as taxes, insurance, and lease payments still.

Sometimes it should thus happen that the lease arrangement permits the tenant to re-purchase the plus once the lease amount is terminated. the acquisition value is also determined on the premise of status, e.g., at its honest market price.

Leasing in India

Leasing trade in India is of recent origin. it had been pioneered in 1973 once for the primary time ‘Leasing Company of India’ was originated in Madras. for nearly seven years within the country, this company was the only leasing company.

In 1980 another leasing company called “20th Century Leasing” came into existence. each of these leasing corporations was promoted by management qualified professionals from the town bank.

Thereafter, a virtual explosion within the leasing trade was noticeable. In 1981 four organizations, viz., Shetty Investment and Finance, ‘Jaybharat Credit and Investment’, ‘Motor and General Finance’, and ‘Sundaram Finance’ joined the leasing business primarily for taking advantage.

The leasing trade entered the third stage within the growth introduced late 1982 once varied monetary establishments and industrial banks either started leasing or declared plans to try to do this. ICICI embraced leasing activity in 1983 wherever once the trickle presently developed into flood and leasing became the new gold mine.

This was additionally the time once the profit performance of the primary large integer corporations had been created a public that was thus fascinating on attracting more corporations in the leasing business.

In the meanwhile, International Finance Corporation declared its call to open four leasing joint ventures in India. to feature the leasing boom, the Finance Ministry declared strict measures for a tour of investment corporations on stock exchanges, which created several investment corporations flip nightlong into leasing corporations. Foreign banks in India notably Grindlays did a commendable ad promoting the leasing plan.

At present, there are three hundred leasing corporations within the country. except for these, several corporations engaged in alternative businesses are leasing out in the main to use their investible surplus in tax benefits.