# Lease agreement Purchase Option....



## FatboyGraphics (Sep 20, 2009)

Is this the normal purchase option at the end of the lease agreement?


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## binki (Jul 16, 2006)

Hmm, We never leased but those terms do not favor you. You pay for 90% of the equipment, are late once and they take it. 

We got a business loan through a bank. It was much simpler and cheaper.


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## PatWibble (Mar 7, 2014)

Ten percent of equipment cost isn't excessive, but you should ascertain how they define equipment cost. Is it the original list price as at the start of the agreement, is it the current list price, are any charges added to the purchase price.

Leasing only really makes sense if your business is paying enough tax to offset against the price. With a lease the entire amount is tax deductible ( at least in the UK ), but with a bank loan only the interest will be deductible.


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## splathead (Dec 4, 2005)

If you compare your lease payment terms to an 18% interest credit card, you'll usually find the payments are about the same. At least with a credit card there is no down payment and once you've paid the card off, you own the equipment outright.


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## FatboyGraphics (Sep 20, 2009)

splathead said:


> If you compare your lease payment terms to an 18% interest credit card, you'll usually find the payments are about the same. At least with a credit card there is no down payment and once you've paid the card off, you own the equipment outright.


But I can't get a $12000 credit card.
I can get the $12000 lease.

Yes, that's my fault for not having great credit. That's been a long road, finally got it to a high fair.


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## gardenhillemb (Oct 29, 2015)

Sounds like a crap shoot to me. You pay the lease payments til the end of the term and then get to buy the machine at fair market value. So basically, you're renting the equipment and then buying a used machine. Why not just get a bank loan and buy a new machine that you are paying to own. Or buy a used machine which is what you'll be buying at the end of your lease.


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## FatboyGraphics (Sep 20, 2009)

gardenhillemb said:


> Sounds like a crap shoot to me. You pay the lease payments til the end of the term and then get to buy the machine at fair market value. So basically, you're renting the equipment and then buying a used machine. Why not just get a bank loan and buy a new machine that you are paying to own. Or buy a used machine which is what you'll be buying at the end of your lease.


it wouldn't be more then $1,200 to buy in 3 years.


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## splathead (Dec 4, 2005)

FatboyGraphics said:


> But I can't get a $12000 credit card.
> I can get the $12000 lease.
> 
> Yes, that's my fault for not having great credit. That's been a long road, finally got it to a high fair.


I didn't realize equipment leases were easier to get than an outright loan. Thought it worked like cars.


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## FatboyGraphics (Sep 20, 2009)

splathead said:


> I didn't realize equipment leases were easier to get than an outright loan. Thought it worked like cars.


I was surprised i got approved, honestly.


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## PatWibble (Mar 7, 2014)

FatboyGraphics said:


> it wouldn't be more then $1,200 to buy in 3 years.


... and you will know exactly how well the machine has been maintained. You will also know exactly how much use it has had and how much serviceable life it has left in it.
Try buying a 3 year old machine for 10% of its new value.

Leasing is a form of rental, often with a buy back option attached at the end. That is why it is 100% tax deductible when only loan interest is deductible.

How much are the total repayments, and what is your tax rate?


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## Hotpuppy (Sep 21, 2016)

This is the normal terms for a 10% buyout lease... there are two types of leases. 10% buyout and $1 buyout. The difference has to do with whether it is an operating lease or a finance lease. The $1 option is considered a finance lease and the 10% is an operating lease if I remember correctly. Each has tax implications and I recommend consulting with your accountant.

The other gotcha to watch for is an "evergreen" clause that renews the lease for a year if you don't give notice on time. The 60 day clause is designed to bite you at the end when you go to pay and they tell you they need two more months of payments.

Everything in a commercial lease is negotiable..... everything. There is no such thing as a standard lease.

Leasing is a very expensive way to finance equipment. Avoid a personal guarantee like the plague if you can get away with it.

See if you can get an SBA Loan, much cheaper, but just as nasty.

A credit card is preferable under certain circumstances.

Above all, make sure you NEED the equipment and can afford it. Don't fall for the $1/shirt 300 shirts a month gimmick that rationalizes the payment.

A $300 lease payment will take $3000 in sales to pay for it in most companies. That assumes a 10% margin which would be a well run operation.

When I leased a pair of presses it was a good move for my company in 2007. We avoided repairs on hard to service machines (A very old TAS and a TUF Olympian) and gained great support from M&R with faster machines. The faster machines and few breakdowns eliminated overtime we were running and reduced labor. That beat out the lease payment, but it ate up alot of my profit. 

I paid for the TAS and TUF on credit cards and with profits from the business.

I'm starting over again.... long story I got out in 2011 and needed to pursue an opportunity in the corporate universe. 

I've already purchased a single head Tajima with Cash. No lease payment.

I also purchased an older 6 color Gauntlet, again with Cash. See a theme here? No, it won't print a 14 color foil design with unicorn fir.... but I don't get very many orders for that. The bulk of my business was always 1 to 2 locations 1 to 3 colors with it heavily slanted towards 1 color 1 and 2 location work. I can contract out the unicorn fir designs when I close that sale.

It's really important to know what you need. I need to be able to print 300 shirts an hour. It's nice to run 500 shirts an hour. But that's it. 1,000 shirts an hour kills me to print. Can I do it? Sure... but it physically kills me and I can only do it for an hour or so.

Again, most of my jobs are 36 to 250 pieces or so.... which at 300 shirts an hour means that I'm printing for less than an hour or two most of the time on a job. Why invest in high capacity equipment (press, compressor, dryer) when I don't need it?

If you are printing manually, the same concepts apply, although I question the ability to sustain a profit with a manual press while navigating workers comp issues related to repetitive motion injuries.


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