Leasing A Business With Option To Buy
A lease-to-own contract is a type of commercial real estate transaction where a tenant commits to renting property for a predetermined amount of time, with the option to purchase it at the end of the lease.
leasing a business with option to buy
Your strategy for acquiring a business without buying it outright can result in affordable terms, but you need to structure your offer carefully. Your success depends upon the goodwill of the current owner who needs to not only agree but also assist with the transition.
Your first written contact with a business owner whose business you wish to acquire should be a letter of intent. In this letter, you explain your plan to purchase their business and how the lease is intended to work regarding your desire to purchase the business assets. It should also include a timeline for your plan showing how you will finance the purchase later on.
This research should be started as soon as the seller signs the letter of intent. Based on your research, you will be able to create a binding agreement with a purchase price. You need to consider the business' current value, its position within the market, its potential for future growth, and other factors.
This contract needs to identify exactly what it is intended to be: an option to purchase business assets or the business' real estate. All basic terms must be fully laid out, and both parties must sign it. It's best to hire an attorney during this process to make sure there are no mistakes that could cost you money in the future.
Unless the business owner agrees to the contract as originally written, you will need to negotiate the terms. After you present your contract for purchase, lease, and option to purchase to the business owner, they must either accept your proposal, reject it, or make a counteroffer.
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A lease with an option to buy can be a powerful purchasing strategy for someone on a budget who is looking to acquire an existing business. Start-up capital is a barrier that plagues many would-be entrepreneurs, but you can overcome this problem with creative negotiating. Utilizing a lease to own strategy for all or a portion of your deal can help you to get what you need, with terms that you can afford. The strategy will help you to extend your resources while securing the facilities, equipment and, in some cases, the established book of business and goodwill of the previous owner. How you put your offer, however can mean the difference between your success and failure.
Initiate your first written contact with the business owner with a letter of intent, in which you spell out your desire to purchase the business utilizing a lease with an option to purchase all or a portion of the assets of the business. The letter should detail your proposed terms, that you will lease certain assets, option the right to buy the assets at a certain price by a certain date and how you intend to eventually finance the purchase. Offer your letter of intent with a fully refundable good faith deposit that is commensurate with the value of the business. The letter is a non-binding agreement, but it establishes specific performance dates, first of which is a due diligence period in which you must do your research on the business.
Begin performing your due diligence once your letter of intent to purchase the business is signed by the seller. The research you do here will directly support your efforts to write your option to purchase. Your conclusions, including your valuation of the business, become the basis for the purchase price in your option to purchase. Determining the value of the business, the business's market position, potential growth any other intangibles will have a profound affect on your success.
Agree with the seller on or before the due diligence deadline that you both intend to move to contract or end the deal. Your letter of intent will have outlined a deadline to finish the contract, as well as a date for closing. Your deal may include the outright purchase of a portion of the business, such as inventory and fixtures, along with a lease and option to purchase specific real estate and equipment. When utilizing a lease with option to purchase, you will likely use two separate agreements: a lease agreement and an option to purchase contract. If you are purchasing a portion of the business outright, a third document, a purchase contract, will be needed.
Draft your option to purchase agreement carefully. The contract must adhere to the principles of the statute of frauds so that your agreement will legally hold up if challenged. Your contract must be in written form. The agreement must be identified for what it is, an option to purchase real estate or business assets. The elemental terms of the agreement must be spelled out, and it must have the signature of both parties. Consult with an attorney to be sure that your contract is written to cover your best interests.
Negotiate with the seller to finalize your deal. This is done by presenting your purchase contract, lease and option to purchase to the seller. They will accept, counter offer or reject your proposal. They will expect the deal to be essentially the same as you had outlined in your letter of intent, and if terms have changed substantially, they will expect justification through documentation uncovered during your due diligence. It is helpful to have the opinion of your CPA in writing to back your claims regarding specific detail. Once the seller agrees to terms by signing your option to purchase agreement,and purchase agreement, if applicable, you are ready to move to closing.
On a fair market value lease (FMV), you have the option to return your equipment and, subject to credit approval, refresh with new, in-stock equipment under a new lease, purchase your equipment from the finance provider at the current fair market value, or return your products to the finance provider and close out your lease. You can also continue to rent your existing products by making post-term monthly payments.
* This is not a commitment to finance. Not all applicants will qualify for financing. Financing options are for informational purposes only. Financing is provided by CIT. Nothing herein is a commitment to finance by Apple or CIT. Financing options are only available to business customers and subject to credit approval and completion of necessary documentation and due diligence. Apple and CIT reserve the right to modify or cancel these options at any time without prior notice. Nothing herein constitutes tax, accounting, financial, or legal advice.
Equipment leasing is a type of financing in which you rent equipment rather than purchase it outright. You can lease expensive equipment for your business, such as machinery, vehicles or computers. The equipment is leased for a specific period; once the contract is up, you may return the equipment, renew the lease or buy it.
Leasing equipment offers many benefits to cash-strapped small businesses. While not all equipment leases are the same, and there are many ways to finance a lease, here are some advantages to leasing your equipment:
Like a purchase, business loans provide more ownership of the equipment. With a lease, the lessor holds the title to any equipment and offers you the option to buy it when the lease concludes. A loan enables you to retain the title to any of the items you purchase, securing the purchase against existing assets.
Funding is usually available in a matter of days. This makes factoring a popular resource for smaller manufacturing operations, the transportation industry and businesses that routinely handle contracts with a fast turnaround.
An independent lessor encompasses all third-party lease providers. Independent lessors include banks, lease specialists and diversified financial companies that provide equipment leases directly to your business. They differ from leasing companies in that they typically specialize in equipment remarketing, a skill that enables them to group products from multiple manufacturers and offer more competitive APRs.
The best advice for choosing a quality lessor is to examine the company with the same level of scrutiny with which you and your company are being scrutinized. Give preference to those willing to partner with your firm. This may be represented in the level of background and experience they have in relation to your line of business or their willingness to work with you on certain terms.
Before you choose a lessor, make sure it has experience in your line of business and will negotiate terms with you. Find out if the company has any pending litigation and offers an easy payment system.
Note: You must be over the age of 18 and have a social security number to submit a lease application. At this time, business-only, trust and commercial financing options are not available.
While some businesses can start in a basement, garage, or kitchen, others require commercial property in the beginning. And, many companies outgrow their original location, so they need to look at commercial property. But, should you buy or lease property for your business? There are pros and cons to buying vs. leasing commercial property. Review the benefits and drawbacks before making a decision.
Finding commercial real estate for purchase can also be more difficult than locating commercial property for lease. Weigh the pros and cons to both rent vs. buy commercial real estate options. And, consider how it will impact your business before making a final decision.
Buying is often considered a good long-term investment. Given that rent payments are likely to increase each year and payments on an owned building typically have fixed overhead costs, buying may be the best investment for your company. For a stable business with plans to stay in one place for a long time, buying is a sensible alternative to leasing real estate. 041b061a72