Lease To Own Forms

Confused by the types of financing available for your company? Want to expand your business, but not the liquid capital available to invest in things like equipment? If it is a lease can be tailored to your business.

How does it work?

Essentially, all leases operate on the principle of leasing an asset from a third party, usually a financial institution for a specified period. This type of contract is generally considered a lease.

Leasing plays an important role in the housing market where properties are rented to tenants. But leasing is also a popular way to finance business growth or face financial difficulties.

In general, the lease will be as follows;

- A company needs a new asset (eg a factory needs a new expensive machine)
- The plant reaches an agreement with a lessor
- The lessor buys the new unit from the seller
- The lessor leases the machine to the factory for a specified period within the meaning of the tenancy agreement say 2 years.
- At the end of the lease of the plant returns either the machine or the renewal of contract with the lessor.

Why use leasing as a form of financing?

Leasing improves cash flow for business expenses such as purchasing expensive equipment are offset by the lessor and the company only pays rental fees. Although these costs are generally higher than the relative cost of purchasing the property outright, the cost is spread over lease payments manageable.

Unlike many loan agreements lease are not considered as debt, but as an expense. This is more favorable to a company entering into credit agreements where other strong credit position of the company is more likely they are eligible for preferential tariffs and increased loans.

As an asset is not owned by the company, but by the lessor the residual cost of owning assets such as aging machines are compensated. This means that a company can upgrade once reached the obsolescence of an asset without the costs involved in the sale or disposal of the assets of aging. This is more effective in cases such as rental of computer hardware, where technology companies want to keep up with their IT infrastructure without the cost continues to degrade kit.

Problems with the rental

As mentioned, the lease can be an expensive way of raising money, often more than other channels, including loans and still more expensive than buying a lot of money as a landlord themselves must be their own benefit.
Leases will often bind the firms in a given period makes sense if circumstances change the company will still need to follow the lease payments.

As with the rental company does not own the assets, valuing a business, for example during a takeover or merger of their property will be less based on an assessment.

Is leasing the financing option appropriate for my business?

Our best advice is to consult financial experts before entering into leasing transactions.