Sometimes a lease option may be more advantageous than making a traditional purchase (i.e., rapidly changing technologies impact a business’s ability to be competitive, the lease of computers or other specialized equipment may be a better financial and strategic approach than equipment purchase). Photocopiers are often leased by organizations, as well.

The following types of leases are used:

Standard (or true) lease

The organization pays a monthly fee for a specified period of time. At the end of the lease, the equipment is returned to the lessor (the lease mayor may not have a renewal option).

Lease with the option to purchase the equipment

The equipment is leased for a specified period of time, after which the organization becomes owner of the equipment.

Conditional sales contract

This type of lease allows the lessee to gain tax benefits (as it makes the organization the owner of the equipment, for tax purposes).

Sale-leaseback

The sale-leaseback is used when a business needs to obtain capital quickly. It occurs when the organisation purchases equipment, sells it back to a lessor, and then leases it from the lessor.

Lease benefits include the following:

• Freed up cash flow
• Budgetary control (lease payments are easily determined)
• Equipment maintenance and record keeping may be contracted out
• Lessee is another potential financing source
• Financing flexibility may be provided by the lessee
• Protection against obsolescence provided
• Tax benefits may be derived
• Capital expenditures approval by top management may be bypassed
• Special equipment lease packages for growing companies may be arranged Equipment Purchasing

When an organization wants an asset to do with as it pleases (as many leases place use restrictions on equipment), and there is no other special consideration making a lease option more favourable, it will purchase the equipment.

Another incentive for purchase from a vendor is that sometimes suppliers or manufacturers will sell their equipment and provide financing at no interest for a specified period of time (i.e., no interest for six months), or the vendor will provide a very low interest rate on monthly payments made by the purchaser for the specified financing time period.

Office furniture is typically purchased because it will be used for a long period of time and there is typically no advantage to taking a lease option. Details regarding furniture purchasing decisions and ergonomically-related issues are covered elsewhere in this program.