Lease Vs. Buy There Are Term Paper

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A financial component that should be considered here is the capital available to the investor. If the business is not very stable, and capital could become a problem, leasing is probably a better option, as the term is shorter. During the shorter term, security can be built, and purchase options can then be considered when the capital is available. For a very stable business with large amounts of capital available, the purchase option may be better, as there is no security deposit, and the return on investment may rise with time.

Non-financial considerations that should be taken into account when making the decision to purchase or lease is the nature of the business. For an established, long-term business venture, purchasing would best option, as there would be fewer complications with lease terms and there is no danger of the owner selling the building, as would be the case with a lease. A short-term business with less secure capital would benefit more from a lease, as the lease amount remains stable throughout the lease period.

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Hence the investor can plan his finances around the lease amount.

Another non-financial consideration is the possibility of expansion. If the business is growing rapidly, it is possible that more space would be needed in the long run. When leasing, this could be a problem, as the investor will not be allowed to make any modifications to the building to accommodate a growing business. Purchasing will then be a better option, as the investor can then either make the decision to purchase more buildings, or add to the existing building for the accommodation of growth.

The decision to purchase or lease a building is not an easy one, and should be given very careful consideration. It is very important to take all financial and non-financial contingencies into consideration to minimize the risk of whichever option is selected.

Source

Financial Planning Toolkit. "Buy or Lease?" Finance.cch.com, 2006. Retrieved August 28, 2006 at http://www.finance.cch.com/sohoApplets/BizBuyvsLease.asp.....

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