This paper gives brief comparison of lease with lease with purchase option is stated along with the advantages of debt and equity financing.

Comparing Lease with Purchasing Options A lease is a contract for transferring the possession of property to another person by charging rents. A lease may also contain a purchase option which entitles the lessee to acquire the ownership of the asset at the end of the contract. The lessee pays the lessor option money for the right to later purchase the property, while in simple lease no such money is paid. Lessor and Lessee may agree to a purchase price at the time of the contract or the lessee may agree to pay market value at the time the option is exercised by him. Lessee is often responsible for maintaining the property and paying all expenses associated with it. (Home Buying, 2009)

Debt Financing Debt financing is an act of the company when it raises funds to fulfill their needs of the Working Capital and the running expenditures they have to make with it. They sell bonds, Bills Payable and Notes payable at a certain rate to investors who are interested in providing money in exchange for interest that accrues after a certain period of time. Hence, they become creditors of the company and after the expiry of that period; the principal along with the interest is paid back. (Investopedia, 2009)

Examples: 1. A company may issue bonds at a certain rate to raise funds for constructing a new factory. 2. A company may issue bills to buy some needed machinery. Equity Financing Equity financing is the process of collecting money from sale of stocks and shares. The company sells the Ordinary shares at a certain price, and Preference shares at a certain rate of interest. Therefore, the buyers of these shares become owners of the company as long as they hold the shares. The money, thus raised, is also known as Share Capital. (Investopedia, 2009) Examples: 1. A company can issue Ordinary shares to purchase Machinery. 2. A company may issue preference shares at a certain rate to raise capital to pay off their debts.

Comparison One can choose any of the two procedures for obtaining liquidity. While choosing between the two options, one should consider their business motives, the kind of control they want and the long term goals. If one needs more control over their business, then they should avail the option of debt financing as one retains maximum control over their business and the interest is tax deductible. On the other hand, if one doesn’t want to worry about repayment and payment interest, they should opt for Equity financing as lenders are rewarded in form of dividend. (Woman Owned, 2009)

Conclusion Both the options can be exercised depending on the circumstances a person wants to do business and the amount of risk he is willing to take.