Role Of Due Diligence In Financial Leasing

Financial lease originated in the United States. Compared to the general direct financing, financing lease has the following advantages:the separation of ownership and use right of the capital leases, the flexible rent payment and the focus of both funds and chattels circulate. It is introduced into China since the 1980s, and has experienced from nothing to trillions of market scale nowadays. However, with the expanding of the market, the financing lease industry is accumulating huge systematic risks, which highlight the significant importance of due diligence.This thesis firstly defines the meanings and characters of financing lease, elaborates the content of due diligence on the perspective of the internal and external development of industry and the project practice, illustrates the profiles of the overseas financial leasing market, the pattern and development policy of the domestic financial market. And then it explains the influence of due diligence in the project implementation, takes the Far East Horizon Limited as a benchmark firm to summarize the principles of due diligence. That is the important prudence principle, indifferent form principle, difference measures principle, the principle of relevance, reliability, and cost control.On this basis, the thesis analyzes the gaps between one financial leasing company and advanced peer enterprise in the process of due diligence, and brings forward the guidelines which come down to, formulating scientific and reasonable guidance of due diligence from the practical situation of the leasing company; formulating the rating standards to measure the project risks, improving the staffs’ knowledge in the field of law and finance; Hiring specialists to assess the large and complicated projects; conducting field survey; formulating quantitative evaluation standards and optimizing the standard format of due diligence report.Finally, this thesis takes a steel company in Hebei province as an example, to summarize the five features of the modified procedures of due diligence, which can be generalize as:more objective of due diligence, more scientific of project analysis, more comprehensive of project guarantee measures, more standardized approval process of the project, and more cautious to enter into a contract. Moreover, the paper gives several suggestions to projects under the analysis of finance, operation and risk control. The innovation of this thesis is the combination of both practice and theory. On the one hand, it has the exposition of the due diligence theory; on the other hand, it analyzes the case of financing lease with the theory, to highlight the important role of due diligence on the project.