Page 55 - DMGT405_FINANCIAL%20MANAGEMENT

Unit 3: Sources of Finance

Hire Purchase Notes

Very similar to leasing is hire purchase except that in hire purchase, the ownership will be
transferred to the buyer after all the hire purchase instalments are paid up. With many non-
banking finance companies offering the leasing and Chire purchase of equipments, many
companies are opting for this route to finance their fixed assets.

Self Assessment

Fill in the blanks:
12. Lease agreements are divided into two major ones – operating lease and ……………lease.
13. …………….. lease is for periods shorter than the useful life of the asset and is cancelable at
the option of the lessee.

3.7 Deferred Credit
The deferred credit facility is offered by the suppliers of machinery, whereby the buyer can pay
the purchase price in instalments spread over a period of time. The interest and repayment
period are negotiated between the supplier and the buyer.

Notes Bill rediscounting scheme, supplier’s line of credit, seed capital assistance and risk
capital foundation schemes offered by financial institutions are examples of deferred
credit scheme.

3.7.1 Capital Assistance Seed

The seed capital assistance scheme is designed by IDBI for professionally or technically qualified
entrepreneurs and/or persons possessing relevant experience, skills and entrepreneurial traits.
The project cost should not exceed 2 crores and the maximum assistance under the project will
be restricted to 50% of the required promoters contribution or 15 lacs whichever is lower.
The seed capital assistance is interest free but carries a service charge of 1% for the first five year
and 10% p.a. thereafter. However, IDBI will have the option to change interest at such rate as
may be determined by IDBI based on the financial position and profitability of the company.
The repayment schedule is fixed depending upon the repaying capacity of the unit with an
initial moratorium up to five years.

For projects with a project cost exceeding 200 lacs, seed capital may be detained from the Risk
Capital and Technology Corporation Ltd. (RCTC). For small projects costing upto 5 lacs,
assisted under the Natural Equity Fund of SIDBI may be availed.

3.7.2 Government Subsidies
The central and state governments provide subsidies to industrial units located in backward
areas. The central government has classified backward areas into three categories of districts: A,
B and C. The central subsidies applicable to industrial projects in these districts are:
1. Category A Districts-25% of the fixed capital investment subject to a maximum of
25 lakh
2. Category B Districts-15% of the fixed capital investment subject to a maximum of 15 lakh

LOVELY PROFESSIONAL UNIVERSITY 49