Leasing training for CARD 20140122

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1. LEASING 2. THIS LEASING WORKSHOP WILL COVER: A. WHAT IS LEASING AND WHAT ARE ITS BENEFITS ? B. LEGAL AND FISCAL FRAMEWORK FOR LEASING C. ACCOUNTING FOR LEASING, AND…
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  • 1. LEASING
  • 2. THIS LEASING WORKSHOP WILL COVER: A. WHAT IS LEASING AND WHAT ARE ITS BENEFITS ? B. LEGAL AND FISCAL FRAMEWORK FOR LEASING C. ACCOUNTING FOR LEASING, AND LEASING AS REFLECTED ON FINANCIAL STATEMENTS. D. TARGETING THE MARKET FOR LEASING: SECTORS AND TYPES OF EQUIPMENT TO BE LEASED E. LEASING TRANSACTION PROCEDURES: DEVELOPING AND CONCLUDING LEASING DEALS. F. LEASING CONTRACTS: TERMS AND CONDITIONS G. ORGANIZATION AND STAFFING FOR LEASING ACTIVITIES H. RISK MANAGEMENT AND RISK ANALYSIS FOR LEASING: LESSEE RISKS, EQUIPMENT RISKS, VENDOR RISKS.
  • 3. WHAT IS LEASING ? LEASING IS THE RENTAL OF PRODUCTIVE EQUIPMENT FOR A GIVEN PERIOD OF TIME (TYPICALLY ONE TO FIVE YEARS). THE RENTER (THE “LESSEE”) PAYS A MONTHLY RENTAL TO THE OWNER (THE “LESSOR”) FOR THE USE OF THE EQUIPMENT.  LEASING MAY BE A SIMPLE RENTAL, WITH THE RETURN OF THE EQUIPMENT TO THE OWNER AT THE END OF THE LEASE PERIOD. THIS IS USUALLY CALLED “OPERATING LEASING”.  OR, LEASING CAN LEAD TO THE PURCHASE OF THE EQUIPMENT BY THE RENTER FROM THE OWNER AT THE END OF THE LEASE PERIOD. THIS IS USUALLY CALLED “FINANCE LEASING” (OR “HIRE-PURCHASE”).
  • 4. A WIDE VARIETY OF ASSETS CAN BE LEASED THE MAJOR CATEGORIES ARE: (1) PRODUCTIVE EQUIPMENT AND VEHICLES FOR BUSINESSES. (2) PRIVATE AUTOMOBILES (3) REAL-ESTATE: LAND, BUILDINGS (4) “CONSUMER” LEASING: FURNITURE, HOME APPLIANCES, TELEVISION SETS ETC. (5) “BIG TICKET” LEASING: AIRCRAFT, SHIPS OUR FOCUS TODAY WILL BE ON LEASING OF PRODUCTIVE ASSETS TO BUSINESSES
  • 5. MANY TYPES OF EQUIPMENT ARE LEASED TO BUSINESSES VEHICLES: TRUCKS, DELIVERY VEHICLES, AUTO FLEETS, BUSES. PRODUCTION AND PACKAGING EQUIPMENT CONSTRUCTION AND MINING EQUIPMENT AGRICULTURAL EQUIPMENT OFFICE EQUIPMENT: COMPUTERS, PRINTERS, FURNITURE MEDICAL AND DENTAL EQUIPMENT PRINTING EQUIPMENT ENERGY EQUIPMENT: GENERATORS, SOLAR PANELS ETC. KITCHEN EQUIPMENT (HOTELS, RESTAURANTS)
  • 6. THERE ARE MANY BENEFITS TO LEASING: --TO THE ECONOMY OF A COUNTRY: LEASING SUPPORTS THE EXPANSION OF THE SMALL AND MEDIUM BUSINESS SECTOR, INCREASING PRODUCTION, EMPLOYMENT AND EXPORTS. --TO THE EQUIPMENT USER: LEASING GIVES A BUSINESS THE ABILITY TO HAVE THE USE OF THE EQUIPMENT OR VEHICLES THEY NEED WITH MINIMUM DELAY, WITHOUT NEEDING TO BUY THEM FOR CASH OR TAKE OUT A LOAN FROM A BANK. --TO SUPPLIERS OF EQUIPMENT: LEASING FACILITATES THE SALE OF THEIR PRODUCTS. --TO PROVIDERS OF LEASING: A PROFITABLE FINANCIAL SERVICE WHICH CAN BE OFFERED TO A WIDE VARIETY OF POTENTIAL CUSTOMERS.
  • 7. LEASING IS A MAJOR ACTIVITY WORLDWIDE LEASING IS A MAJOR ACTIVITY IN MANY COUNTRIES AROUND THE WORLD, IN EMERGING ECONOMICS AS WELL AS IN DEVELOPED ECONOMIES. LEASED EQUIPMENT CAN BE A MAJOR SHARE OF A COUNTRY’S INVESTMENT IN PRODUCTIVE ASSETS.
  • 8. LEASING CAN BE PROVIDED BY A VARIETY OF SOURCES LEASING IS A SERVICE OFTEN PROVIDED BY SPECIALIZED COMPANIES, WITH KNOWLEDGE OF EQUIPMENT AND OF THE CORPORATE AND SME SECTORS IN THEIR COUNTRIES. LEASING COMPANIES MAY BE OWNED BY BANKS, OR BY EQUIPMENT MANUFACTURERS, OR THEY MAY BE INDEPENDENT. LEASING MAY ALSO BE DONE BY BANKS OR FINANCE COMPANIES ON THEIR ONW BALANCE SHEETS. EQUIPMENT DEALERS.MAY DO LEASING, SOMETIMES AS “CAPTIVES” OF ONE MANUFACTURER. LEASING REQUIRES ENOUGH CAPITAL AND FINANCIAL SUPPORT TO BE ABLE TO BUY EQUIPMENT AND LEASE IT FOR MULTI-YEAR PERIODS. INTERNATIONAL DONORS ACTIVELY SUPPORT THE DEVELOPMENT OF LEASING IN EMERGING MARKETS BY PROVIDING EQUITY AND DEBT FINANCING TO SUPPORT LEASING. .
  • 9. EXAMPLES OF THE TWO TYPES OF LEASING EXAMPLES OF THE TWO TYPES OF LEASING: OPERATING LEASE AND FINANCE LEASE (1) A CHEESE PRODUCTION COMPANY HAS GROWING ORDERS AND NOW NEEDS A DELIVERY TRUCK TO BE ABLE TO DISTRIBUTE ITS PRODUCTS TO ITS CUSTOMERS QUICKLY. (2) A FRUIT JUICE PRODUCER NEEDS A SECOND PRODUCTION LINE TO MEET GROWING DEMAND FOR ITS PRODUCTS AND TO BROADEN ITS PRODUCT RANGE. NEITHER COMPANY HAS ENOUGH CASH OR BANK CREDIT TO BE ABLE TO BUY THE EQUIPMENT THEY NEED.
  • 10. STEPS TOWARD AN OPERATING LEASE DEAL (1) THE CHEESE PRODUCTION COMPANY KNOWS THE MODEL OF DELIVERY TRUCK IT WANTS, AND IS DISCUSSING PLACING AN ORDER WITH A LOCAL VEHICLE IMPORTER/DEALER. (2) HOW THE TRUCK WILL BE PAID FOR IS THE OBSTACLE TO PLACING THE ORDER . (3) THE DEALER IS AWARE THAT A LEASING COMPANY IS WILLING TO LEASE THIS TYPE OF TRUCK TO GOOD COMPANIES, AND ENCOURAGES THE CHEESE PRODUCTION COMPANY TO SPEAK WITH THE LEASING COMPANY.
  • 11. STEPS TOWARD AN OPERATING LEASE DEAL (4) THE LEASING COMPANY ALREADY HAS A WORKING RELATIONSHIP WITH THE VEHICLE DEALER, AND THIS TRUCK MODEL HAS ALREADY BEEN APPROVED AS “LEASABLE”. (5) THE LEASING COMPANY OBTAINS AND REVIEWS INFORMATION ABOUT THE CHEESE COMPANY’S OWNERS, BUSINESS OUTLOOK, AND FINANCIAL STABILITY, AND DECIDES THAT THE COMPANY WILL BE ABLE TO MAKE THE RENTAL PAYMENTS FROM ITS SALES REVENUES. (6) THE CHEESE COMPANY PREFERS TO LEASE THE TRUCK FOR THREE-YEARS, THEN RETURN IT TO THE LEASING COMPANY, AND POTENTIALLY LEASE A NEWER MODEL AT THAT TIME. SO THE LEASING COMPANY AGREES TO OFFER AN OPERATING LEASE TO THE CHEESE COMPANY.
  • 12. STEPS TOWARD AN OPERATING LEASE DEAL (7) AN OPERATING LEASE CONTRACT IS SIGNED, STATING THE COST OF THE TRUCK (AS QUOTED BY THE DEALER); THE PART OF THE COST TO BE PAID BY THE CHEESE COMPANY (20 %); THE AMOUNT OF EACH MONTHLY RENTAL PAYMENT; ARRANGEMENTS FOR INSURANCE , AND FOR SERVICE AND MAINTENANCE (DONE BY THE DEALER); AND STATES THE REMAINING VALUE AT THE END OF THE LEASE (IN CASE THE CHEESE COMPANY LATER DECIDES TO BUY THE TRUCK). (8) THE LEASING COMPANY ORDERS THE TRUCK FROM THE DEALER, AGREEING TO PAY THE DEALER IN FULL WHEN DELIVERED. THE TRUCK IS REGISTERED IN THE LEASING COMPANY’S NAME. THEN IT IS DELIVERED TO THE CHEESE COMPANY, WHO SIGNS FOR ACCEPTANCE THAT IT IS RECEIVED IN GOOD ORDER. THE CHEESE COMPANY CAN FREELY USE THE TRUCK FOR THE PERIOD OF THE LEASE.
  • 13. STEPS TOWARD AN OPERATING LEASE (9) AT THE END OF LEASE TERM (3 YEARS): THE EQUIPMENT IS RETURNED TO THE LESSOR, WHO HAS THE FOLLOWING OPTIONS: (A) LEASE THE TRUCK TO ANOTHER USER. (B) SELL THE TRUCK TO ANOTHER PARTY (C) SELL IT TO THE DEALER, UNDER A BUY-BACK AGREEMENT . (D) SELL IT TO THE LESSEE (RESIDUAL VALUE) (E) LEASE IT AGAIN TO THE LESSEE.
  • 14. STEPS TOWARD A FINANCE LEASE DEAL (1) THE FRUIT JUICE COMPANY IS IN CONTACT WITH THE FOREIGN MANUFACTURER OF A NEW PRODUCTION LINE (THIS IS THE SAME MANUFACTURER WHO PROVIDED THE COMPANY’S FIRST PRODUCTION LINE. SERVICE AND SPARE PARTS HAVE BEEN RELIABLY SUPPLIED BY THE MANUFACTURER AND ITS LOCAL REPRESENTATIVE). (2) THE FOREIGN MANUFACTURER HAS QUOTED A PRICE FOR THE NEW PRODUCTION LINE (INCLUDING COST OF FREIGHT AND INSURANCE), AND REQUIRES A CONFIRMED DOCUMENTARY LETTER OF CREDIT TO BE OPENED IN ITS FAVOR, PAYABLE IN FULL WHEN THE SHIPMENT ARRIVES IN THE JUICE COMPANY’S COUNTRY.
  • 15. STEPS TOWARD A FINANCE LEASE DEAL (3) THE FRUIT JUICE COMPANY WOULD LIKE TO BUY THE EQUIPMENT WITH CREDIT FROM ITS BANK, BUT THE BANK WILL ONLY CONSIDER A LOAN IF THE COMPANY CAN GIVE COLLATERAL (PROPERTY MORTGAGE) TO COVER THE LOAN AMOUNT (USD 500,000), WHICH THE COMPANY CANNOT PROVIDE. (4) THE FRUIT JUICE COMPANY THEN SPEAKS WITH THE LEASING COMPANY, GIVING INFORMATION ABOUT THE EQUIPMENT THEY WISH TO OBTAIN, AND ALSO GIVING INFORMATION ABOUT THEIR COMPANY’S BUSINESS AND FINANCIAL SITUATION.
  • 16. STEPS TOWARD A FINANCE LEASE DEAL (5) THE LEASING COMPANY EXAMINES THE EQUIPMENT, AND DECIDES THAT IT IS OF GOOD QUALITY AND CAN PRODUCE ITS PRODUCT EFFICIENTLY; THAT THE MANUFACTURER’S ABILITY TO PROVIDE SERVICE, MAINTENANCE AND PARTS IS RELIABLE; AND THAT THE EQUIPMENT IS STANDARD IN THE SECTOR AND COULD BE SOLD OR LEASED TO ANOTHER FRUIT JUICE PRODUCER IF NECESSARY. (6) THE LEASING COMPANY ALSO DECIDES THAT THE JUICE COMPANY’S BUSINESS IS GROWING; THAT ITS FINANCIAL POSITION IS STABLE; THAT ITS OWNER/MANAGERS ARE CAPABLE AND COMMITED TO THE BUSINESS; AND THAT IT SHOULD BE ABLE TO MAKE ITS MONTHLY LEASING PAYMENTS WITHOUT DIFFICULTY FROM ITS SALES REVENUES.
  • 17. STEPS TOWARD A FINANCE LEASE DEAL (7) THE LEASING COMPANY PROPOSES A FINANCE LEASE TRANSACTION, IN WHICH THE LEASING COMPANY WILL BUY AND LEASE THE EQUIPMENT FOR FOUR YEARS TO THE JUICE COMPANY, WHO WILL MAKE 48 MONTHLY LEASING PAYMENTS. OWNERSHIP WILL PASS TO THE JUICE COMPANY AFTER IT MAKES ITS FINAL LEASE PAYMENT. THE JUICE COMPANY WILL PAY IN ADVANCE 30 % OF THE COST OF THE NEW EQUIPMENT. (8) AFTER SIGNING THE FINANCE LEASE CONTRACT, THE LEASING COMPANY ORDERS THE EQUIPMENT FROM THE FOREIGN MANUFACTURER, TO BE IMPORTED IN THE NAME OF THE LEASING COMPANY. UPON ARRIVAL OF THE EQUIPMENT AT CUSTOMS, THE JUICE COMPANY CONFIRMS THAT THE EQUIPMENT IS ACCEPTABLE AND THE LEASING COMPANY PAYS THE PURCHASE PRICE. THEN THE EQUIPMENT IS DELIVERED TO THE JUICE COMPANY, WHO USES IT DURING THE 4- YEAR LEASE PERIOD.
  • 18. STEPS TOWARD A FINANCE LEASE DEAL (9) AT THE END OF LEASE TERM (4 YEARS): THE LESSEE HAS THE FOLLOWING OPTIONS: (A) LESSEE MAY OPT TO BUY THE EQUIPMENT (PRICE IS AGREED IN ADVANCE IN A FINANCE LEASE CONTRACT) (B) LESSEE MAY RETURN THE EQUIPMENT TO LESSOR, WHO MAY LEASE IT, OR SELL IT TO THE VENDOR OR TO ANOTHER PARTY. (C) IF LESSEE WISHES TO BUY BEFORE END OF LEASE CONTRACT, LESSEE PAYS ALL REMAINING PAYMENTS, PLUS RESIDUAL VALUE, PLUS EARLY TERMINATION FEE.
  • 19. TWO TYPES OF LEASING: SIMILARITIES AND DIFFERENCES IN BOTH CASES: --THE COMPANY WAS ABLE TO START USING THE EQUIPMENT REASONABLY QUICKLY. -- NO OTHER COLLATERAL WAS NEEDED, ONLY A DOWN PAYMENT OF 20 % OR 30 % OF THE PURCHASE PRICE. --THE LEASING COMPANY REMAINS OWNER FOR THE PERIOD OF THE LEASE --THE LEASING COMPANY COULD TAKE THE EQUIPMENT BACK IF THE COMPANY DOES NOT MAKE ITS MONTHLY LEASE PAYMENTS. THE DIFFERENCES ARE: --THE JUICE COMPANY: WILL OWN THE PRODUCTION LINE AFTER 4 YEARS; --THE JUICE COMPANY IS RESPONSIBLE FOR SERVICE AND MAINTENANCE OF THE LEASED EQUIPMENT (UNDER AGREEMENTS WITH THE MANUFACTURER) --THE CHEESE PRODUCER WILL RETURN THE DELIVERY TRUCK TO THE LEASING COMPANY AFTER 3 YEARS. --THE LEASING COMPANY IS RESPONSIBLE FOR SERVICE AND MAINTENANCE
  • 20. THE ENVIRONMENT FOR LEASING Prepared by USAID’s Financial Access for Investing in the Development of Afghanistan.
  • 21. THE ENVIRONMENT FOR LEASING LEASING NEEDS AN ENVIRONMENT WITHIN WHICH IT CAN OPERATE. KEY ELEMENTS ARE: (1) A LEGAL SYSTEM WHERE PROPERTY RIGHTS ARE CLEAR AND CONTRACTS ARE ENFORCEABLE IN COURTS. (2)ACCOUNTING AND TAX TREATMENT OF LEASING WHICH IS REASONABLY APPLIED AND WHICH CONFORM TO INTERNATIONAL PRACTICES. (3) AN INSURANCE SECTOR WHICH PERMITS LEASED ASSETS TO BE INSURED AGAINST MAJOR RISKS. (4) SOME FORM OF REGISTRATION OF PLEDGES ON MOVABLE PROPERTY . (5) A LEGAL AND REGULATORY ENVIRONMENT WHICH ENCOURAGES LEASING, RATHER THAN OVERLY RESTRICTS IT.
  • 22. THE ENVIRONMENT FOR LEASING (1) A LEGAL SYSTEM WHERE PROPERTY RIGHTS ARE CLEAR AND CONTRACTS ARE ENFORCEABLE IN COURTS --OWNERSHIP TITLE TO VEHICLES AND EQUIPMENT NEED TO BE CLEAR AND DOCUMENTS CAN PROVE OWNERSHIP --CONTRACTS BETWEEN PRIVATE PARTIES, IN CASE OF DISPUTE, CAN BE SETTLED THROUGH THE LEGAL SYSTEM --PROCEDURES FOR FORECLOSURE ON COLLATERAL (BANKS), OR REPOSSESSION OF LEASED ASSETS BY LESSORS, FUNCTION EFFECTIVELY WITHOUT UNDUE DELAY.
  • 23. THE ENVIRONMENT FOR LEASING (2) ACCOUNTING AND TAX TREATMENT OF LEASING WHICH IS REASONABLY APPLIED AND CONFORMS TO INTERNATIONAL PRACTICES. A. CORPORATE INCOME TAX LAW: PROVISIONS RELEVANT TO LEASING CAN INCLUDE: --DEFINITION OF FINANCE LEASES --ACCOUNTING TREATMENT OF FINANCE LEASES --DEPRECIATION SCHEDULES FOR TYPES OF ASSETS B. VALUE ADDED TAX (VAT) LAW PROVISIONS RELEVANT TO LEASING CAN INCLUDE: --VAT APPLICABLE TO INTEREST --VAT APPLIABLE TO PURCHASE AND SALE OF ASSETS.
  • 24. THE ENVIRONMENT FOR LEASING (3) AN INSURANCE SECTOR WHICH PERMITS LEASED ASSETS TO BE INSURED AGAINST MAJOR RISKS. INSURANCE CAN COVER MOST RISKS ASSOCIATED WITH VARIOUS TYPES OF LEASED ASSETS: --VEHICLES (PASSENGER OR COMMERCIAL): THIRD PARTY LIABILITY, DAMAGE, THEFT, FIRE ETC --MANUFACTURING EQUIPMENT --CONSTRUCTION AND MINING EQUIPMENT --AGRICULTURAL EQUIPMENT
  • 25. THE ENVIRONMENT FOR LEASING (4) SOME FORM OF REGISTRATION OF PLEDGES ON MOVABLE PROPERTY: --LAWS ON SECURED TRANSACTIONS ON MOVABLE PROPERTY SHOULD INCLUDE LENDERS’ COLLATERAL, BUT ALSO LEASED ASSETS UNDER LEASING TRANSACTIONS. --THE REGISTRY OF SECURING CHARGES (OR MOVABLE COLLATERAL REGISTY) SHOULD PROVIDE FOR CLEAR REGISTRATION OF LEASED ASSETS, FULLY TRANSPARENT TO THIRD PARTIES. --REGISTRY PERMITS LESSORS TO REGISTER EQUIPMENT WHICH IS LEASED UNDER LEASE CONTRACT, PROTECTING AGAINST PLEDGE OR SALE TO OTHER PARTIES
  • 26. ENVIRONMENT FOR LEASING (5) A LEGAL AND REGULATORY ENVIRONMENT WHICH ENCOURAGES LEASING, RATHER THAN OVERLY RESTRICTS IT. --THERE ARE LAWS IN FORCE RELATING TO FINANCIAL LEASING. --THE CENTRAL BANK LICENCES AND REGULATES LEASING, DONE EITHER BY BANKS OR BY NON-BANK FINANCIAL INSTITUTIONS (UNIVERSAL CREDIT ORGANIZATIONS).
  • 27. ACCOUNTING TREATMENT OF LEASING
  • 28. ACCOUNTING TREATMENT OF LEASING THERE ARE TWO METHODS OF ACCOUNTING FOR LEASING: (1)THE “LEGAL” METHOD: THE ASSET IS ON THE BALANCE SHEET OF THE LEGAL OWNER (THE LESSOR); (2) THE “ECONOMIC” METHOD: THE ASSET IS ON THE BALANCE SHEET OF THE USER (LESSEE), WHO HAS THE ECONOMIC BENEFIT OF THE EQUIPMENT. THE METHOD USED BY LESSORS AND LESSEES IN A GIVEN COUNTRY IS THE ONE REQUIRED BY THE TAX AUTHORITIES IN THAT COUNTRY, PRACTICES IN DIFFERENT COUNTRIES VARY WIDELY. SOME USE THE “LEGAL” METHOD FOR ALL LEASES. OTHERS USE THE “ECONOMIC” METHOD FOR FINANCE LEASES (AS IN ARMENIA) AND THE “LEGAL METHOD” FOR OPERATING LEASES.
  • 29. ACCOUNTING TREATMENT OF LEASING  “LEGAL” METHOD OF ACCOUNTING: --THE LEASED ASSET IS BOOKED AS A “FIXED ASSET” TO THE LESSOR. --THE LESSOR TAKES THE DEPRECATION EXPENSES. --THE LEASE PAYMENT IS A REVENUE FOR THE LESSOR, AND AN EXPENSE FOR THE USER. --THERE IS NO ASSET OR LIABILITY ON THE BALANCE SHEET OF THE USER. --THIS METHOD IS IAS STANDARD FOR “OPERATING LEASES”
  • 30. ACCOUNTING TREATMENT OF LEASING  “ECONOMIC” METHOD OF ACCOUNTING: --THE LEASED EQUIPMENT IS A “FIXED ASSET” ON THE BALANCE SHEET OF THE USER (LESSEE) --THE LESSEE TAKES THE DEPRECIATION EXPENSE. --THE LEASE CONTRACT IS A FINANCIAL ASSET FOR THE LESSOR (FINANCE LEASES RECEIVABLE) AND A LIABILITY FOR THE LESSEE (FINANCE LEASES PAYABLE) --THE LEASE PAYMENT IS DIVIDED INTO TWO PARTS: (A) INTEREST ( REVENUE FOR THE LESSOR, AND AN EXPENSE FOR THE LESSEE) (B) PRINCIPAL (A REDUCTION OF FINANCE LEASES RECEIVABLE/PAYMENT, NOT A REVENUE OR EXPENSE). --THIS METHOD IS IAS STANDARD FOR “FINANCE LEASES”
  • 31. ACCOUNTING TREATMENT OF LEASING LAWS OF ARMENIA RELEVANT TO LEASING: CIVIL CODE (ARTICLES 677-684) DEFINE “FINANCE LEASING” BUT IS SILENT ON ACCOUNTING TREATMENT. ACCOUNTING UNDER TAX LAWS IS DONE UNDER “ECONOMIC” METHOD: INCOME TAX LAW (ARTICLE 12) PROVIDES FOR DEPRECIATION OF FIXED ASSETS (INCLUDING LEASED ASSETS): PRODUCTIVE EQUIPMENT: 3 YEARS (AFTER 1/14: 50 %) OTHER FIXED ASSETS: 5 YEARS (AFTER 1/14: 30 %) LEASED ASSETS ON BALANCE SHEET OF LESSEE, WHO TAKES THE DEPRECIATION EXPENSE (TAX DEDUCTIBLE EXPENSE) LEASE PAYMENTS: INTEREST PORTION IS INCOME TO LESSOR, AND DEDUCTIBLE EXPENSE TO LESSEE. LAW ON VAT: VAT (20 %) IS PAYABLE ON PURCHASE/SALE OF LEASED ASSETS. PRINCIPAL FORTION OF LEASING PAYMENTS ARE SUBJECT TO 20 % VAT. INTEREST PORTION OF LEASING PAYMENTS ARE NOT SUBJECT TO VAT.
  • 32. TARGETING THE MARKET FOR LEASING
  • 33. TARGETING THE MARKET FOR LEASING THE MARKET FOR LEASING HAS THE FOLLOWING ELEMENTS (TO BE DECIDED AS A MATTER OF POLICY): --PARAMETERS FOR LEASING DEALS --ECONOMIC SECTORS TO BE TARGETTED --TYPES OF EQUIPMENT TO BE LEASED --CRITERIA FOR ACCEPTABLE LESSEES --VENDOR RELATIONSHIPS TO BE TARGETTED
  • 34. TARGETING THE MARKET FOR LEASING LEGAL OFFICER: --PREPARE DOCUMENTS FOR LEASING DEALS PARAMETERS FOR LEASING DEALS: --WHETHER TO OFFER FINANCE LEASES, OPERATING LEASES OR BOTH. --TERM OF LEASES: POLICY BASED ON LESSOR’S FUNDING AND ON RISK CONSIDERATIONS: --LEASE CONTRACTS --SUPPLIER CONTRACTS FINANCE LEASES: 2 YEARS MINIMUM, 4 YEARS MAXIMUM OPERATING LEASES: ONE YEAR MIN., 3 YEARS MAXIMUM --LEGAL ENFORCEMENT OF LEASING CONTRACT --LESSEE SHARE OF “EQUITY”: 20% MIN.(30% STANDARD) --REPOSSESSION --COURT CASE (PREPAYMENT/SECURITY DEPOSIT) --CURRENCY, PRICING OF LEASES: BASED ON LESSOR LEGAL FUNDING; OFFICER: INTEREST FORMULA (FIXED OR ADJUSTABLE) ----LEASE P AMOUNTS: WHAT WILL MINIMUM AND MAXIMUM LEASE TRANSACTION AMOUNT BE (BASED ON LESSOR CAPACITY, TYPE OF LESSEE, TYPES OF EQUIPMENT)
  • 35. TARGETING THE MARKET FOR LEASING ECONOMIC SECTORS TO BE TARGETED: SECTOR POLICY FOR LEASING IS BASED ON LESSOR’S SECTOR STRATEGY OR ON TYPES OF EQUIPMENT TARGETTED. TYPICAL SECTORS FOR LEASING ARE: --MANUFACTURING --PROCESSING AND PACKAGING --AGRICULTURE --CONSTRUCTION --TRANSPORTATION --MINING --MEDICAL
  • 36. TARGETING THE MARKET FOR LEASING TYPES OF EQUIPMENT TO BE LEASED: EQUIPMENT POLICY IS BASED ON SECTOR STRATEGY, OR ON OTHER FACTORS SUCH AS DEALER RELATIONSHIPS OR EQUIPMENT RISK CONSIDERATIONS. DOES THE LESSOR WISH TO SPECIALIZE ? TYPICAL EQUIPMENT CATEGORIES FOR LEASING ARE: --LIGHT VEHICLES (PASSENGER, COMMERCIAL, DELIVERY) --HEAVY TRUCKS --AGRICULTURAL EQUIPMENT (TRACTORS ETC). --CONSTRUCTION EQUIPMENT, MINING EQUIPMENT --LIGHT PRODUCTION EQUIPMENT --PACKAGING EQUIPMENT --MEDICAL AND DENTAL EQUIPMENT --ENERGY EQUIPMENT (GENERATORS, SOLAR PANELS ETC)
  • 37. TARGETING THE MARKET FOR LEASING CRITERIA FOR ACCEPTABLE LESSEES POLICY FOR LESSEES IS BASED ON LESSOR’S TARGET CUSTOMER STRATEGY AND RISK CRITERIA. TYPICAL CATEGORIES WOULD BE: --ESTABLISHED COMPANIES, POSITIVE CREDIT HISTORY --GROWING COMPANIES WITH GOOD SALES GROWTH BUT OUT CREDIT HISTORY --START-UP COMPANIES WITH STRONG SALES PROSPECTS --COMPANIES IN ACCEPTABLE ECONOMIC SECTORS --COMPANIES WISHING TO LEASE EQUIPMENT WHICH THE LESSOR IS TARGETING (WHICH COULD BE UNDER VENDOR AGREEMENTS)
  • 38. TARGETING THE MARKET FOR LEASING VENDOR RELATIONSHIPS TO BE TARGETTED VENDOR STRATEGIES CAN BE PART OF A LEASING STRATEGY. AGREEMENTS CAN BE CONCLUDED WITH VENDORS OF EQUIPMENT WHICH THE LESSOR WISHES TO LEASE. AGREEMENTS WITH VENDORS CAN BE EXCLUSIVE OR NON-EXCLUSIVE THEY CAN INVOLVE A BUY-BACK COMMITMENT FROM THE VENDOR, OR ONLY A REMARKETING AGREEMENT. AN AGREEMENT CAN INCLUDE A DISCOUNT OR COMMISSION TO THE LESSOR FOR BUYING AND LEASING THE VENDOR’S EQUIPMENT, IMPROVING LESSOR PROFITABILITY.
  • 39. LEASING TRANSACTION PROCEDURES
  • 40. LEASING TRANSACTION PROCEDURES STEPS IN DOING A LEASING DEAL: (1) IDENTIFY THE CUSTOMER OPPORTUNITY (2) OBTAIN NECESSARY INFORMATION (3) ANALYZE THE RISKS (4) PREPARE AND SUBMIT THE PROPOSAL FOR APPROVAL (5) AGREE ON TERMS WITH LESSEE AND VENDOR (6) FORMALIZE, DOCUMENT THE DEAL: SIGN CONTRACT WITH LESSEE, ORDER EQUIPMENT FROM VENDOR (7) DELIVERY, INSTALLATION AND PAYMENT (8) SUBSEQUENT MONITORING (9) REMEDIAL MEASURES IN EVENT OF DEFAULT (10) ACTIONS AT END OF LEASE TERM
  • 41. LEASING TRANSACTION PROCEDURES (1) IDENTIFY THE CUSTOMER OPPORTUNITY CUSTOMER OPPORTUNITIES CAN ARISE FROM: --RELATIONSHIPS WITH POTENTIAL LESSEES (CORPORATE, SME, MICRO), AND KNOWLEDGE OF THEIR EQUIPMENT NEEDS. --RELATIONSHIPS WITH EQUIPMENT VENDORS, WHO IDENTIFY AND REFER POTENTIAL CUSTOMERS TO THE LESSOR --LESSOR EXPERTISE IN A GIVEN SECTOR, IDENTIFYING GROWING COMPANIES IN THAT SECTOR. --PUBLIC MARKETING AND MEDIA CAMPAIGN RESULTS IN LESSEE IDENTIFICATION
  • 42. LEASING TRANSACTION PROCEDURES (2) OBTAIN NECESSARY INFORMATION: A. INFORMATION ABOUT LESSEE: --LEGAL/INCORPORATION DOCUMENTS --FINANCIAL STATEMENTS/FORECASTS --BUSINESS INFORMATION (PRODUCTS, CUSTOMERS) B. INFORMATION ABOUT EQUIPMENT C. INFORMATION ABOUT
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