Have you heard about rent or lease? It is an agreement between two parties where one party rents and other takes possession for an agreed period.Landlord and tenants sign lease agreements while renting property. Companies do that all the time to raise funds. It is called as Lease Financing. It is one of the most interesting sources of finance. Let’s learn more about it.
A lease is a contractual agreement whereby one party that is the owner of an asset grants the other party the right to use the asset in return for a periodic payment. In simpler terms, leasing is renting an asset of the company for a specified period. The ‘lessor’ is the owner of the party and the ‘lessee’ is the party that uses the assets. The lessee pays a fixed periodic amount called ‘lease rental’ to the lessor for the use of the asset.
Lease contract mentions the terms and conditions involving lease arrangement.. The asset is returned to the lessor at the end of lease period. Leasing is more widespread in the acquisition of assets as computers and electronic equipment which become obsolete quicker be of rapid development in technology in the sector. It is very important while making the leasing decision to compare the cost of leasing the asset with the cost of owning the same.
The deposits that are raised by organizations directly from the public are known as public deposits. Companies offer higher rates of interest offered on public deposits are usually than that offered on bank deposits. Any person who prefers depositing money in an organization does so by filling up a prescribed form. The organization in return issues a deposit receipt as an acknowledgement of the debt. Public deposits take care of both medium and short-term financial requirements of a business.
As the depositors receive higher interest rate than that offered by banks, the cost of deposits to the company is less than the cost of borrowings from banks. The deposits are profitable to both the depositor as well as to the organization. Companies generally invite public deposits for a period up to three years. The acceptance of public deposits is regulated by the Reserve Bank of India.
Q: Under the lease agreement, the lessee gets the right to (a) Share profits earned (b) Participate in the by the lessor management of the organisation (c) Use the asset for a specific time (d) Sell the assets specified period
Q: Discuss the limitations of public deposits.
Answer:Newborn companies find it difficult to obtain funds through public deposits. Also, it is an untimely source of finance as the public may not respond when the company needs money. Collection of public deposits may prove difficult, particularly when the size of deposits required is large.
As the depositors do not have voting rights, the control of the company is not further diluted. The procedure of depositing is easy and does barely contains restrictive conditions. Cost of public deposits is lower than the cost of borrowings from banks and financial institutions.
No Ownership or Equity: Since the lessor retains ownership of the leased asset, the lessee does not build equity in the asset over time. This can be a disadvantage if the business would have benefited from owning the asset or using it as collateral for other financing needs.
Leasing is very profitable since the rate of return (ROI) on lease rents is substantially more than the interest payable on the asset's financing. In lease financing, the lessor holds ownership of the asset while passing all risks and benefits associated with the owner to the lessee.
Public Deposits refer to the unsecured deposits or money invited by companies from the public mainly to finance their short or long-term working capital needs.
As the name indicates, public deposits are those deposits made directly to an institution by the general public. On deposits of the general public, companies pay higher interest rates than banks. Those who choose to deposit money with an organisation fill out the deposit paperwork.
You can only withdraw deposits within specific terms and conditions, and deposits have higher interest rates than ordinary savings. But if you withdraw funds without the agreed timeframe, the bank usually imposes a penalty. Deposits usually have minimum funds to qualify for.
In the case of finance leases, where the relationship is more like ownership — meaning, the risks and control of the asset lies mostly with the lessee. An open-ended vehicle lease, where there is an obligation to purchase the car at the end of the lease, is an example of a finance lease.
Aspects and Risks in Finance Lease: Significant aspects include the lease term and lease payments. Potential risks involve the overall cost and terms of the finance lease agreement, and whether these align with the financial capabilities and needs of the lessee.
On the one hand, buying involves higher monthly costs, but you own an asset—your vehicle—in the end. On the other hand, a lease has lower monthly payments and lets you drive a vehicle that may be more expensive than you could afford to buy, but you get into a cycle in which you never stop paying for the vehicle.
Leasing a vehicle is similar to renting an apartment in that you make monthly payments while enjoying temporary use of the vehicle. A lease may be an attractive option if you're not interested in owning a car right now, you prefer to drive newer vehicles, or you're a business owner who needs a car for work.
Public banks have the unique advantage of offering banking services while serving specific public policy goals. While they can be a valuable resource for underserved communities and the specific government entity, establishing a public bank can be challenging, and there are potential risks to their stability.
Public banks lend for needed community improvements such as affordable housing, climate-resilient infrastructure, and small business support at low interest rates due to their lower overhead, with the added advantage that profits earned can be returned to the municipality's general fund.
Banks use the major portion of deposits to extend loans. These loans are then recovered with an interest. Banks charge a higher interest for credit than deposits. Hence, the amount they receive is greater than the amount that they lend.
Introduction: My name is Gregorio Kreiger, I am a tender, brainy, enthusiastic, combative, agreeable, gentle, gentle person who loves writing and wants to share my knowledge and understanding with you.
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