Final answer:
Yes, it is true that lease arrangements can help businesses, especially new or financially limited ones, conserve capital for other essential business needs. This can be vital for a company's growth and flexibility, as alternative financing options might involve mandatory payments that could drain cash reserves.
Step-by-step explanation:
The statement that lease arrangements allow new or financially strapped businesses to divert their capital to other business needs is true. Leasing equipment or facilities can help a business to conserve its capital, as it avoids the significant upfront investment required to purchase assets outright. This preserved capital can be used for other critical business functions, such as expansion, research and development, or marketing efforts.
For example, a small company may choose to lease equipment instead of purchasing it, which frees up cash that would otherwise be tied up in the asset. This approach can be especially advantageous for businesses that are not generating substantial profits yet and are focused on growth. Leasing can also offer flexibility since it can be easier to upgrade or replace leased items as the needs of the business evolve, without the burden of reselling or disposing of owned assets.
It's also important to understand that alternative financing options, like issuing bonds or borrowing money, come with obligatory interest payments which can drain a company's cash flow. On the other hand, issuing stock does not require regular payments, although dividends may be paid if chosen. Additionally, venture capitalists offer a different form of investment, with hands-on management and strategic guidance, which might be beneficial for some businesses.