The last time you needed a car, you had a decision to make. Did you want to lease or to purchase? You knew that if you purchased the car and financed it, after 5 years you would no longer have any car payments. That option is great for someone who plans on keeping a car for many years. But what if you are a person who likes to trade in a car after only 2 or 3 years? In this case, a lease might be the better option. Just as there are many pros and cons to leasing and purchasing cars, there are also benefits and drawbacks to leasing and buying space for your retail establishment. You will need to determine for yourself and your company which option is best for you. Here is a short list that can help you to decide which path to take:
PROS of Leasing:
- Short terms - You may be able to find a lease that is short-term. This can be beneficial if you are unsure if you want to remain in the same area long-term.
- Budgeting - Leases can often cost less than purchases, which means you might have more funds to spend on other items.
- Qualifying - You might qualify for a lease more easily than you would qualify for financing to purchase.
- Less upfront costs - Not having to make a large down payment for a lease can be a large benefit to many.
- Lower maintenance costs - If something building-related breaks at the property that you are leasing, most leases will cover the cost of repairs.
CONS of Leasing:
- Long terms - You might find the perfect space in the perfect location, but to lease it, you might be required to sign a contract that is longer than what you want or need.
- Lack of income - As you cannot rent leased space, there is no additional revenue stream from which to earn income.
- Lack of control - Leasing means abiding by the terms of the lease, which means that you most likely will need approval to do any modifications to the facility.
PROS of buying:
- Control - If you own your property you will most likely have more control over your space. This means you will be able to complete things such as modifications that you would like to do to the property.
- Rental income - When space permits, you may have the ability to rent extra space to tenants which can, in turn, provide extra income.
- Low-interest rates - Depending on the economy, you may be able to finance your purchase at a low-interest rate which can ultimately save you money.
- Tax breaks - Owning property may qualify your business for various tax breaks that you would not receive were you to lease.
- Value - There is always the possibility that your property will appreciate, which can ultimately bring greater ROI.
CONS of buying:
- Financing - Getting approval to finance the purchase of a property could be difficult, especially for new businesses.
- Liability - When your company owns real estate, your company is responsible should anyone get injured while on your property.
- Funding - Most likely, you will need money up-front to purchase the space that you need. If you do not have this capital available, you may not be able to buy.
- Value - Though what you purchase might increase in value, the risk you take with purchasing is that the value decreases.
It's evident that both leasing and purchasing have advantages and disadvantages. You must determine for your business which is the better alternative for you. If you opt to purchase, your company may qualify for a U.S. Small Business Administration loan, which could mean lower down payments and less or no need for collateral. Before signing any lease or purchase documents, you should always check with your financial advisor or CPA who can best guide you to the right decision for your company.
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