This paper examines the key considerations a company should weigh when deciding whether to lease or purchase a factory building. It covers financial factors such as purchase price versus lease payments, security deposits, investment returns, and loan term lengths, as well as non-financial factors including business stability, ownership security, and the potential need for physical expansion. The paper argues that both sets of factors must be carefully evaluated together to minimize risk and select the option that best fits a company's current capital position and long-term business outlook.
The paper demonstrates comparative analysis applied to a business decision. Rather than advocating for one option outright, it systematically identifies conditions under which each option is superior, showing the student's ability to hold two positions in tension and resolve them based on contextual variables.
The paper opens with a brief introduction establishing the decision framework, then moves through financial factors across three focused paragraphs (price, security deposits, and loan terms). It then pivots to non-financial factors — business longevity and expansion potential — before closing with a brief conclusion. This mirrors a standard business analysis structure: criteria identification, comparative evaluation, and recommendation.
There are various factors that should be taken into account when making the decision to buy or lease a factory building. These factors generally relate to what is of greater value at the time of purchase or lease. A company should carefully calculate what would be of better financial value, and also what would be of better value in terms of ownership in the long run. Both financial and non-financial factors should therefore guide the decision.
Financial factors include a variety of comparative price and investment elements. The most important of these is the purchase price as it compares to the lease price. If the purchase down payment is more expensive than the lease payment, this means that the investor loses investment value, and leasing may be the better option. However, a factor that should also be taken into account is that investment returns fluctuate within any given year, while a lease price does not. When leasing a building for a certain period of time, the investor could still lose value, yet there is also a possibility of gaining on the investment during the term of a loan repayment.
When leasing, there is also a possibility of losing the security deposit that the owner charges to mitigate the costs of possible damage. In the case of a factory building, a large number of employees may cause considerable damage, and the security deposit may be partly or fully lost. This depends on the type of factory that the building will be used for. High-risk operations — such as heavy equipment manufacture — may incur more damage than low-risk types of work, such as clothing manufacture. When high-risk equipment is involved, purchasing may be the best option.
The decision to purchase or lease a building is not an easy one and should be given very careful consideration. It is very important to take all financial and non-financial contingencies into account in order to minimize the risk of whichever option is selected.
You’re 47% through this paper. Sign up to read the remaining 2 sections.
Sign Up Now — Instant Access Already a member? Log inAlways verify citation format against your institution’s current style guide requirements.