Lease Purchase

One of the most frustrating things in business is knowing that you want to buy your equipment, but also understanding that you do not have the liquid capital or the ability to finance in order to do so. For those who plan to buy their equipment, but do not have the means immediately, a lease purchase may be the appropriate option. This type of arrangement combines the advantages of a lease with the opportunity to buy equipment.

You should realize before entering into an equipment lease that is structured as a lease purchase that you will probably pay a higher price for the equipment in the end. While a portion of each month's lease payment will go toward the ultimate purchase price of your equipment, not all of it does. And some leasing companies require that you pay a non-refundable deposit as part of the purchase lease agreement. But, if you know that you will buy your equipment in the end, the purchase lease will help you get your foot in the door and will ensure that you have the exclusive right to buy the equipment in question.

Convenience of a Lease Purchase

The lease purchase is convenient for those who want to buy but are not in a position to do so. It is the equipment lease equivalent of "rent to own". When you buy equipment outright, you have to put up the entire amount. If you do not have that money on hand, then you have to finance the purchase, usually through a bank or lending institution. If you are an established business, you have to have good business credit. If you are a start-up business, you have to have a good five or ten year business plan. It can be very difficult to get the financing, and many business owners are incapable of securing the funds they need.

Leasing, on the other hand, is much simpler. Most business owners will qualify for most leases, especially if the lease is under $100,000. A purchase lease will allow you end up owning the equipment, but without having to pay all of the money up front. You work out terms with the leasing company, including how much of the deposit will be paid upfront, and how much of each month's lease payment can be applied to the purchase price. At the end of the lease term, you have the first right to buy the equipment. You pay whatever is left to be paid to complete the purchase. Overall, you will end up paying more than fair market value, but unlike a true lease, you won't be paying much more. (With a true lease you pay fair market value AFTER the lease is over and you've made monthly payments for years).

Alternatives

An alternative to the straight purchase lease is the capital lease. This lease is ideal if you plan to purchase, as it allows you to list the equipment as an asset, and capitalize the obligation. At the end, you can purchase the equipment for one dollar, or for 10% of the value.