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Why finance an office upgrade through leasing

Bridget Holmstrom - Saturday, January 31, 2015

The benefits of leasing furniture

Upgrading the office furniture can, and usually is, a very expensive undertaking for any company.  Commonly these office upgrades are funded through capital investment, through buying the chosen furniture.  

Why would a company consider leasing office furniture rather than buying outright?

The first reason might be the cost of capital.  In times when the cost of capital is low then it may well make sense indeed be cheaper than leasing.  However the cost of capital is not always low and the equation can change when the cost of capital increases.  

Leasing furniture may also allow the facility manager greater flexibility in quickly changing organisations when the demands of the office are changing.  It seems that many businesses underestimate how often new furniture needs to be purchased and how of the office needs to be reconfigured.  Leasing agreements are also easier to manage in cash flow terms.  Capital purchases need to be paid for up front whereas leasing allows the cost to be spread evenly.  Furthermore this expenditure can is fully tax allowable.

Questions that the business should ask themselves when looking at the various funding alternatives include the cost of capital, and what the company intends to do once the lease agreement has finished.  Will the furniture be returned to the leasing company or will it be kept.  What is the quality and life expectancy of the furniture?  What is the length of the lease?

As with all legal agreements it is very important to properly understand the terms and conditions of the lease agreements.  For example, what are the costs of damages beyond the normal wear and tear and what will the business have to pay.  To ensure that the terms of the lease are properly understood it is important to get the right commercial advice.