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Chapter: 1

Introduction

A lease is an agreement allowing one party to use anothers property,

plant,or equipment for a stated period of time in exchange for onsideration.

Leases hae !ecome more prealent as !usinesses and consumers loo" foralternaties to finance the acquisition of fixed assets. A lease agreement

inoles at least two parties # a lessor $such as a !an"#, who owns the

property, and a lessee, who uses the property. %he lessor, essentially a

creditor in the transaction, is repaid from a com!ination of lease or rental

payments, tax !enefits, and proceeds from the sale or re&lease of the property

at the end of the lease term.Although leasing is often thought of as a modern

day financing technique,

indications are that leasing transactions too" place around '((( ).C., when

*umerian farmers leased tools from temple priests. %he !asics of leasing

hae changed little since that time. +er the years, the strength of the leasing

industry has !een its resiliency and its a!ility to ma"e the most of the

changing !usiness enironment.Leasing is the most widely used method of

personal property financing in the nited *tates today. -or !an" lessors,

leasing is another competitie product

that can satisfy the needs of !an" customers leases may !e safer than other

!an" products !ecause the transactions are secured and leases are generally


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more profita!le than commercial loans !ecause of adantages inherent in

their structure, such as tax !enefits.

OBJECTIVESOF THEREPORT


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We have prepared the report for some definite purposes. Those purposes are photographed beneath as,

To find out the leasing policies of United Leasing Company (ULC),

To evaluate the performance of United Leasing Company (ULC),

To give focus of their current cost of fund and focus on reduction of cost of fund

To develop any alternate source of funding

To recommend specific measures in order to improve leasing strategies of ULC by analyzing the Strength,

Weakness, Opportunities and Threats (SWOT)

To highlight on the products that can take them on the driving seat in the competition with banks and other

financial institutions

METHODOLOGY Tabulation system to describe corporate information, different products and features of the company

Ordinal level of measurement

Graphs- to show the companys ratio analysis

LIMITATIONS

Lack of information due to the policy of the company of keeping all the information confidential,

Inadequate knowledge on contemporary leasing terms of the companys business representatives.

Insufficient time due to the congested corporate schedule and exam schedule,

Lack of knowledge about the real life leasing business,

Insufficient published information and reluctance about providing those by the company.


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Chapter:2

Lease Financing:

Lease financing is a very common financing solution for businesses that need to acquire equipment.

Repayments are spread over several months and are tax deductible. Lease financing is very simple,

especially with CLE Leasing (ee the steps on our!"R CL#E$% page.& %he purchaser chooses the

equipment and the vendor, and fills out a one'page credit application form. follow'up is conducted within

)* hours, and a final decision is issued shortly thereafter.

%here are five main advantages+

. simple and quic- financing application and approval process

). /rotection of your wor-ing capital (monthly rentals are much lower than the total cost of the

equipment, and your line of credit remains intact&

0. 1our borrowing capacity from ban-s is preserved and can be used for financing that only them can

provide

*. 1our monthly rentals are tax deductible

2. ales taxes do not apply when acquiring equipment.

Lease is a contract !etween the owner and the user of assets for a certain

time period during which the second party uses an asset in exchange of

ma"ing periodic rental payments to the first party without purchasing it.

nder lease financing, the lessee regularly pays the fixed lease rent oer a

period of time at the !eginning or at the end of a month, / months, 0 monthsor a year. At the end of the lease contract the asset reerts to the real owner.

oweer, in case of long&term lease contracts, the lessee is generally gien

the option to !uy the leased asset or renew the lease contract. %he three

ma2or types of leases are the operating lease, financial3capital lease and the
http://www.cleleasing.ca/en/financing-solutions.htmlhttp://www.cleleasing.ca/en/financing-solutions.htmlhttp://www.cleleasing.ca/en/financing-solutions.htmlhttp://www.cleleasing.ca/en/financing-solutions.html


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direct financing lease. %he operating lease is a short&term lease contract

where the lessor !ears all operating and repairing costs of the asset and the

lessee pays periodic rental payments to the lessor, and where the lease is

cancela!le, and there is no !argain purchase option. -inancial3capital lease is

a long&term lease contract where the lessee !ears all operating, repairing and

maintenance costs, and ma"es periodic rental payments to the lessor. %he

lease is not cancela!le and the lessee has the option for !argain purchase or

renewal of lease contract at the end of the original lease period. In a direct

financing lease, the lessor leases the asset !y manufacturing or !y

purchasing from the manufacturer to the lessee directly and the lessee ma"es

regular rental payments to the lessor. %he lessor holds the ownership of the

asset until the end of the lease period and the lessee holds the possession of

the asset. In addition to these ma2or types, there are some other types of

lease such as sale and lease and leeraged lease.

Legally, a leasing company is defined as one haing the !usiness of hiringplants or equipment or of financing their hire !y others. %he International

-inance Corporation promotes leasing as a method of financing industrial

deelopment in the deeloping countries as a part of its capital mar"et

deelopment strategies.

Lease Classification Criteria

-rom the standpoint of the lessor, all leases may !e classified for accounting

purposes as follows:

a) Capital or financial lease: %o !e a capital lease, it must satisfy one or

more of the following four criteria:$1#%he lease transfers ownership of the

property to the lessee, $'#%he lease contains a !argain purchase option,

$/#%he lease term is equal to 456 or more of the estimated economic life

of the leased property, $7#%he present alue of the minimum lease payment

$excluding executory costs# equals or exceeds 8(6 of the fair alue of the

leased property.$*tamford,Conn. -A*),189(#. +ffice !uilding,

ultipurpose industrial !uilding and een complete shopping centers are

frequently financed with this method. ost lease !ac"s are on a net&net

!asis, which means that the lessee pay all maintenance expense, propertytaxes, insurance and lease payment .

b) Operating lease: +perating leases result in the recognition of only rent

expense. nder the operating lease each rental receipt !y the lessor is

recorded as rental reenue. Leases that do not meet any of the four criteria

are classified and accounted as operating Lease. *hort&term cancela!le


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lease agreements are called operating lease. Computers, copiers, telephone

serices, etc. are often o!tained !y operating leases. An operating lease is

usually characteri;ed !y the following features:

$1#%he lease is cancela!le !y the lessee prior to its expiration $'#%he lessor

proides serice,maintenance and insurance and $/#%he sum of all lease

payments !y the lessee does not necessary fully proide for the recoery of

the asset cost#.

c) Sale-leaseback: %he term sale&lease!ac" descri!es a transaction in which

the owner of the property $seller&lessee# sells the property to another which

is simultaneously leases it !ac" from the new owner. %he use of the property

is generally continued without interruption. %he adantages of a sale lease

!ac" from the sellers iewpoint usually inole two primary considerations:

$1# -inancing < If the purchase of equipment has already !een financed, a

sale&lease !ac" can allow the seller to refinance at lower rates, assuming

rates hae dropped. In addition, a sale&lease!ac" can proide anothersource of wor"ing capital, particularly when liquidity is tight.

$'# $'# %axes& At the time a company purchases equipment, it may not

reali;e that it was going to !e a minimum tax and that ownership might

increase its minimum tax lia!ility. )y selling the property, the seller&lessee

may deduct the entire lease payment, which is not su!2ect to minimum tax

considerations.

Lease Financing in Bangladesh:


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)angladesh is a deeloping country, !ut the national calamity and political

unrest sluggish the industrial growth as well as economic growth of the

country. In spites of all these hindrance the growth of leasing companies is asignificant indication of our !right prospects.

Lease financing was first introduced in )angladesh in the early 189(s.

Industrial =eelopment Leasing Company of )angladesh Ltd. $I=LC#, the

first leasing company of the country, was esta!lished in 1890 under the

regulatory framewor" of )A>?LA=@* )A>. It was a 2oint enture of

the Industrial Bromotion and =eelopment Company of )angladesh Ltd.

$IB=C#, International -inance Corporation, and orea =eelopment Leasing

Corporation. Another leasing firm, the >I%@= L@A*I>? C+BA>

Ltd. started its operations in 1898. %he num!er of leasing companies grew

quic"ly after 1887 and !y the year '(((, rose to 10. %he leasing !usiness

!ecame competitie with the increase in the num!er of companies and wider

distri!ution of their mar"et share. %here are, howeer, 0 other companies

conducting leasing !usiness in the country, although they do not use the

word leasing in their names. In terms of money alue, the leasing !usiness in

)angladesh increased from %" 71.77 million in 1899 to %" /.10 !illion in

'(((.

%he leasing companies now operating in the country are Industrial

=eelopment Leasing Company of )angladesh, nited Leasing Company,?*B -inance Company $)angladesh#, ttara -inance and Inestments, )ay

Leasing and Inestment, Bhoenix Leasing Company, Brime -inance and

Inestment, International Leasing and -inancial *erices, nion Capital,

Dani" )angladesh, Beoples Leasing and -inancial *erices, )angladesh

Industrial -inance Company, A@&)angladesh Inestment Company,

)angladesh -inance and Inestment Company, and -irst Lease International.

Lease financing, as organi;ed in )angladesh, operates with the following

o!2ecties: $a# to assist the deelopment and promotion of productie

enterprises !y proiding equipment lease financing and related serices $!#

to assist in !alancing, moderni;ation, replacement and expansion of existing

enterprises $c# to extend financial support to small and medium scale

enterprises $d# to proide finance for arious agriculture equipment and $e#

to actiate the capital mar"et !y operating as managers to the issue,

underwriters, or portfolio managers.


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%he functions of a lease !usiness include lease financing, short&term

financing, house !uilding financing, and merchant !an"ing and corporate

financing. In this last group of functions, the leasing !usiness in )angladesh

moed away from regular leasing actiities and is now inoled in stoc"&

mar"et related actiities such as issue management, underwriting, trust

management, priate placement, portfolio management, and mutual fund

operation. )road capital mar"et operations of the lease financing institutions

include !ridge financing, corporate counseling, mergers and acquisition,

capital restructuring, financial engineering, and lease syndication. Brominent

among the sectors of the economy that now receie lease financing serices

are textiles, apparels and accessories, transport, construction and

engineering, paper and printing, pharmaceuticals, food and !eerage,

chemicals, agro&!ased industries, telecommunications, and leather and

leather products.

Commercial !an"s and deelopment finance institutions $=-Is# hae !een

the traditional lending institutions in )angladesh. In fact, the concept of

lease financing is a relatiely new one in the country. Initially, leasing

companies had to adopt the role of educators to ma"e )angladeshi

entrepreneurs aware of the !enefits of leasing. oweer, as =-Is

demonstrated poor recoery and fund recycling performances, leasing got

the opportunity to deelop as an alternatie source of funding. A few other

factors also contri!uted to deelopment of the leasing !usiness in the

country. -or example, the commercial !an"s hae !een "eener in proiding

trade financing and -+E@I?> @FCA>?@ dealings rather than long&term

loans !ecause of the ris"s inoled and their longer gestation period. %he

selection of lease proposals is relatiely free from extraneous pressure and is

su!2ect to a quality leel appraisal. nder lease agreements in the priate

sector, pro2ects are sanctioned and implemented expeditiously, resulting in

!enefits in time and cost saings. Briate leasing companies also attract

clients !y proiding relatiely !etter serices. %he down payments in leasing

are not high and the gestation period is low. Also, in case of lease financing,

incidental costs incurred in the process of import clearing, installation, and

commercial production are capitalised, which su!stantially reduce the initialinestment.

Leasing companies, howeer, face some pro!lems in conducting their

!usiness in the country. %he relatiely slow growth of the demand side

compared to the fast growth of the lease !usiness is one such pro!lem. %his

leads many leasing companies to operate in partial capacity. %he culture of


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loan default that preails in the country is also a deterrent. Leasing

companies often find it difficult to raise funds through short& or long&term

!orrowing from money and capital mar"ets. %hey are hard pressed to deal

with the financial assets !ecause of the present laws of the country, which

are also not fully enforcea!le.

Leasing !usiness is gaining increased importance in the economy of

)angladesh with its gradual transformation from an agrarian to industrial

one. %he goernment periodically reises the trade and industrial policy to

create a li!eral !usiness enironment !oth for domestic and foreign

inestment. Increased inestment in the energy sector as well as in power,

transport, telecommunications, water and sanitation, and safe disposal of

wastes is expected to !ring further opportunities for leasing industries.

%he traditional sources of funds of our country in the financial mar"et are

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