Bullard Lease/Purchase
Financing Alternative
LEASE/PURCHASE: A SIMPLE, COST EFFECTIVE ALTERNATIVE
Many cities, counties, fire districts, and volunteer fire departments are faced with the pressure that occurs when demands for their services outpace their financial resources. To cope with this problem, political subdivisions often turn to a financing alternative that has long been recognized as a source of funding for large capital expenditures.
Advantages of Lease Purchase Financing
Once reserved primarily for larger purchases, such as fire trucks, fire stations, and vehicles, lease purchase financing is now being utilized as a source of funding for smaller purchases such as turnout gear, SCBAs, and thermal imagers. Developing a lease purchase plan is attractive because it offers political subdivisions a number of advantages:
First, the use of lease/purchase financing eliminates the need for large, up-front cash outlays. This allows for greater budget flexibility because these plans can fit the cash flow requirements of each individual organization.
This enables cities, counties, fire districts, and volunteer fire departments to take advantage of low interest rates available to qualified political subdivisions. These rates are lower than conventional commercial rates, and in some cases, lower than the interest being paid on CDs and other short-term investments. In addition, the use of a lease/purchase arrangement allows an organization to purchase equipment at today's prices, not next year's increase.
Capital is freed up for other pressing needs, and departments are not left in the position of trying to decide between needed upgrades in one area and working with obsolete or worn out equipment in another area. The cash flow resulting from limited budget funding is maximized because only the current year payments appear on the budget.
Flexibility is another big advantage, since under a typical lease purchase agreement, the political subdivision and the financing company form an agreement for a given number of years. This agreement is structured to meet the subdivision's individual budgeting situation. Payments can be made annually, semi-annually, quarterly, monthly, or in any combination thereof.
Friendly Terms to Today's Financing
Unlike "traditional leasing" or "rentals", lease/purchase financing allows the user to build equity with every payment and gives them immediate title to the equipment. When the agreement expires, the political subdivision executes a dollar buy-out and owns the equipment free and clear. This is in contrast to other leasing programs where there is a large balloon payment or residual to satisfy at the end of the lease. When long-term costs are considered, a lease purchase may even result in a cost savings!
At times, organizational leaders feel they can only afford to purchase new equipment if they have a substantial down payment or can pay cash for the purchase. However, by delaying the purchase, the political subdivision is faced with normal manufacturer price increases, inflation, as well as the cost of maintaining the existing equipment. For all these reasons, a lease purchase plan may make the most sense for a political subdivision in need of new equipment.