To Lease or Purchase?
May 2, 2011
ACC/400 Peter Ioveno
To Lease or Purchase?
It is important to know when it is a good time to purchase items or lease items, as an individual and in the business world. If you purchase an item at the wrong time, it could easily put a company as risk for financial hard times. The following will detail some important factors to review when purchasing or leasing is an option.
The Differences between Leasing and Purchasing
Both leasing and purchasing has its pros and it cons. The trick is to figure out which would be better for a company’s current financial status. Leasing allows a lessee to avoid large down payments, keep updated materials, lower ...view middle of the document...
equity financing is one of the most important decisions facing managers who need capital to fund their business operations. Debt and equity are the two main sources of capital available to businesses, and each offers both advantages and disadvantages”(eNotes, 2011). Debt financing are basically short-term and long-term loans that include interest. For example, the lenders of these types of loans would include various government agencies such as the Small Business Administration and banks. On a positive note, the interest accrued on debt financing is usually tax deductible and the lenders do not have a claim in the company. Debt financing does have it disadvantages. For example, companies may find it difficult to meet the required payments for the loan.
Equity financing is when capital is gained by investments being made into the company in exchange for a share of ownership in the company. An investor in the company can be anyone from a complete stranger who wanted to simply invest to a family member or friend who wanted to help out. The company is not obligated to pay back the invested amounts. The investors would be looking for the return on their investment from profits made in the future. The disadvantage from equity financing is that every person who owns a share in the company has a part in the decisions for the company. If there are too many investors and business decisions being made by external stakeholders, it is a real possibility that the company will end up on a different course than originally intended.
Which Capital Structure is the Best?
In choosing debt or equity financing, it is important to review all aspects of a company. For instance, if a small business was in need of capital, but showed negative credit standings and was comfortable with the addition of partners, might want to use equity financing instead of debt financing. In this case debt financing would be more costly due to high interest rates from negative credit scores and large loan payments. If a large business wanted to maintain...