What's Best For Your Business: Rent, Lease, Buy?
Even in the midst of a global pandemic, new businesses are being created every day. In serving our Startup and Small Business clients, one of the most common questions that our team has been met with recently is whether renting office furniture is the best solution for those who need to furnish an office in a hurry.
What To Know: Renting vs. Leasing
While the terms Rent and Lease are often confused and used interchangeably, there are very important differences between them.
Rental Office Furniture
Choosing to rent office furniture can be a quick and low-cost way to furnish your office. Renting is generally best for those who need a short-term solution, usually between 3-6 months. When you rent furniture, it’s commonly understood that you have no intention of purchasing the furniture outright at the end of the rental period. The furniture is often from an existing pool of inventory that has been rented by others previously—so the furnishings themselves will not be brand new.
- Advantages: Very fast delivery; lower monthly costs
- Disadvantages: Your business does not own the asset; limited product options when compared against leasing
Leasing Office Furniture
Unlike renting office furniture, using a leasing or “rent-to-own” model offers you and your business more options and flexibility while sharing a similar structure in terms of monthly payments. In a leasing scenario, furniture is selected specifically for your requirements. The leasing company purchases the furniture and charges you a monthly fee to use the equipment. This payment is calculated based on a number of factors, including the length of the lease and the financing amount charged by the leasing company. Because the leasing company is the one buying the furniture, they generally require that a company has been in operations for at least 2 to 3 years, they will require company financials, and they may require a personal guarantee from the owners or principals.
- Advantages: Unlimited product options, designed to your specifications; conserves capital by avoiding a single large cash outlay, additional tax advantages may apply (check with your CPA or tax professional).
- Disadvantages: Interest and fees add to the final amount your company will end up paying; requires documented financial performance.
There are 2 general types of equipment leases:
Fair Market Value (FMV): Under an FMV lease, at the end of the lease period you will have the option to:
- Return the furniture to the leasing company
- Buy the furniture out at the agreed upon Fair Market Value of the product (the difference between what you have paid and the agreed upon value)
FMV leases carry a lower monthly payment, however, have higher “buyout” at the end of the lease period if you wish to own the furniture.
$1 Buyout: Under the $1 Buyout Option, at the end of the lease period you will own the furniture for a token payment ($1.00). While the $1 Buyout lease carries a higher monthly payment, the fact that it requires little or no additional payment at the end of the lease period may appeal to some business owners who don’t want to commit to a larger cost further down the road.
Case Studies: Choosing What Works For You
So, what’s the best option? The answer will depend on your company’s specific requirements and needs. Among the companies we’ve recently helped furnish their new offices, one decided on outright purchase of the furnishings, while another combined short-term rental options with a longer-term lease plan to suit their changing dynamics.
Why they came to Sam Clar: Company 1 needed to set up an office for 40 employees within 10 days. They planned to occupy their office space for up to five years, and were looking for a very inexpensive solution— no more than $325 per employee. Company 1 asked about rental office furniture because of the speed with which they needed the products, and their belief that renting would be the least expensive option.
The verdict: Because the company planned to use the furniture for 60 months, we determined that renting would actually be a much more expensive option than simply buying the furniture outright. The Sam Clar team located a used furniture inventory that fit the schedule and the budget, and Company 1 ended up purchasing the furniture outright.
Best option for Company 1: Outright purchase
Best Option: Outright purchase.
Why they came to Sam Clar: Company 2 had thirty people scheduled to start work in five days—so they needed solutions, fast. But they also had a longer-term need to furnish their office with furniture that reflected their brand and company culture.
The verdict: To suit both of these contradictory needs, we determined that the best plan would be to provide a short-term solution with rental office furniture, followed by a long-term solution that allowed us to design their space with furniture that would either be purchased outright, or leased on a $1 buyout basis. Our team delivered the rental furniture within five days—and we are working with the client to develop the permanent furniture solution.
Best Option: Short-term rental combined with long-term purchase (leasing vs. buying to be determined)
Whether your needs mirror those of one of the companies above, or are entirely unique, the team at Sam Clar is ready to find the best solution for your office furniture requirements. For more information visit our financial services page at samclar.com.