Buying vs Leasing
Executive Summary
What would be the best option for a company to lease or purchase equipment? Each business owner’s situation is different. The decision to buy or lease business equipment is unique. It must be made on a case-by-case basis. Leasing equipment preserves capital giving the business more flexibility. While leasing can be good in the short run it can cost you more in the long run. We will look at the advantages and disadvantages of leasing. My research will look at the different options a company faces if they lease or buy and why it has become more attractive to lease.
First let’s start by describing the basic concept of a lease. Some leases are merely rentals, whereas others are effectively purchases. FASB classifieds lease as an operating lease or a capital lease. A lease must meet one of the following criteria’s to be considering a capital lease. The lease is greater than 75% of the property’s estimated economic life, the lease contains an option to purchase the property for less than fair market value usually at a bargain price, ownership of the property is transferred to the lessee at the end of the lease term, or the present value of the lease payments exceeds 90% on the fair market value of the property. The lessor transfers the right to use the property to a lessee. Lessor is the finance company and lessee is the person leasing. The lessee makes one-time or periodic payments to the lessor in return for the use of the property. Leased asset can either be tangible property such as a home, office, car, airplane or computer. If you run a business and have to decide to lease or buy here are some benefits of leasing to consider. Less cash up front means conserving capital. A lease can also provide services to the equipment by giving it maintenance. Lease payment terms tend to be longer which makes payment more attractable. The ability to upgrade equipment is a benefit in growing businesses that need to keep up with technology.
One advantage
What would be the best option for a company to lease or purchase equipment? Each business owner’s situation is different. The decision to buy or lease business equipment is unique. It must be made on a case-by-case basis. Leasing equipment preserves capital giving the business more flexibility. While leasing can be good in the short run it can cost you more in the long run. We will look at the advantages and disadvantages of leasing. My research will look at the different options a company faces if they lease or buy and why it has become more attractive to lease.
First let’s start by describing the basic concept of a lease. Some leases are merely rentals, whereas others are effectively purchases. FASB classifieds lease as an operating lease or a capital lease. A lease must meet one of the following criteria’s to be considering a capital lease. The lease is greater than 75% of the property’s estimated economic life, the lease contains an option to purchase the property for less than fair market value usually at a bargain price, ownership of the property is transferred to the lessee at the end of the lease term, or the present value of the lease payments exceeds 90% on the fair market value of the property. The lessor transfers the right to use the property to a lessee. Lessor is the finance company and lessee is the person leasing. The lessee makes one-time or periodic payments to the lessor in return for the use of the property. Leased asset can either be tangible property such as a home, office, car, airplane or computer. If you run a business and have to decide to lease or buy here are some benefits of leasing to consider. Less cash up front means conserving capital. A lease can also provide services to the equipment by giving it maintenance. Lease payment terms tend to be longer which makes payment more attractable. The ability to upgrade equipment is a benefit in growing businesses that need to keep up with technology.
One advantage
References: Earl K.Stice, PhD: Intermediate Accounting:2010,2007 South-Western ,Cengage Learning The Economist Newspaper: The Economist, 2012,Buy or Rent? Pam Newman: Entrepreneur :2006 Leasing Vs Buying: Which is Best for You?