The choice between leasing and buying is usually associated with cars and office equipment, but the advantages of leasing can apply to office furniture, too.
To qualify for leasing, your company must have been in business for at least a year, preferably two. Leasing terms range from 12 to 60 months, but 36 months is the most common.
“There are a lot of benefits to leasing office furniture,” says Joe Bartolick, vice president of Budget Office Furniture. “One of the biggest is the tax advantage. The interest rate you pay on leasing may seem like a high rate, but if you talk to your tax accountant and run the numbers, you typically end up saving more in taxes than what you pay in interest.”
For example, take a company in the 35 percent tax bracket that takes out a 36-month lease on $10,000 worth of furniture. The company will spend about $12,100 during the three years — or $2,100 in interest. However, the tax savings from leasing will be about $4,200, so the real cost of the furniture is about $7,900.
“The other benefit is you are spreading your payments over time,” says Bartolick. “You have a fixed monthly payment that you can accurately forecast in your budget. If you bought it with cash, you’d be paying out all the money at one time.”
Furniture leasing hasn’t reached the popularity level of car leasing, and furniture isn’t usually returned to the dealer like a car is at the end of the lease. And companies typically keep their furniture for a longer period of time than the standard three-year lease.
Leases are typically set up in one of three ways:
* Dollar buyout. At the end of the lease, the company buys it out for $1. Because there is no large balloon payment at the end, monthly lease payments are higher.
* 10 percent buyout. A company pays 10 percent of the original cost of the furniture to own it when the lease period is up.
* Fair market buyout. This requires the company to pay the fair market value of the furniture at the time the lease ends. The amount can also be used as a basis to release the furniture. The fair market option gives the lowest payments, but you end up owing a considerable amount at the end of the lease.
This option can be used for companies that are growing and plan on moving to a new office in a few years. The company can lease low-cost furniture for a few years, then return it and upgrade to new furniture that matches the new office at the end of the lease.
“The company keeps its costs down by going with a lower priced product during the three-year period, then upgrades to a newer and nicer product using the savings,” says Bartolick.
“Different leasing options give you payments that allow you to stay in budget,” says Bartolick. “Each company is different on how it’s structured. It’s important to find out what the options are, because it may be more of a benefit for some companies to buy it all at once.” How to reach: Budget Office Furniture, 216-566-1540