Loan granted to finance the acquisition of an asset e.g., motor vehicles, generating sets etc.
Leasing refers to a mode of financing which allows the use of equipment in return for agreed lease payments.
This is a financing option for the acquisition or use of an asset. Two major types of leasing exist namely: Finance and Operating Lease.
Lessor – owner of equipment/asset.
Lessee – user of equipment/asset.
Long-term financing of fixed assets. Typically assets financed should be generic assets that can be easily realised in the event of default.
An agreement between the lessor and the lessee by which the former permits the latter the use of the equipment (asset) for an agreed period of time, in return for lease rentals which the lessee pays to the lessor.
Associated risks include technology, factory defect, competition, and diversion.
TYPES OF LEASE
Finance lease – the lessor (Wema Bank) transfers to the lessee (customer) substantially all the risks and rewards incident to ownership of an asset. Title may or may not eventually be transferred (purchase option at/residual value).
Operating lease - the lessor does not necessarily transfer all the risks and benefits of asset ownership to the lessee. This is done by asset manufacturers or dealers. Ordinarily, banks do not engage in operating lease or lessor activities.