A quick look at an office equipment leasing deal that explains why leasing can be a better strategy than buying.
Friedman Alpren & Green, a midsize accounting firm based in New York City, wanted to upgrade its computer system. But how to do it in a way that didn't play havoc with working capital? Partner Harriet Greenberg explains, "Faced with a purchase cost of $250,000, we would have had to use our credit line and then do something that didn't make sense to us -- tie up short-term funds for a long-term asset."
The accounting firm decided instead to lease the new computers from BLT Leasing, also of New York City. The firm's cost-benefit analysis focused on a key comparison: What would be the overall cost of purchasing the computers (factoring in items such as credit-line interest charges and depreciation-driven tax write-offs)? Then, how would that compare with the total cost of leasing (monthly fees over the life of the lease and so on)?
The firm also considered intangibles, such as the way leasing preserved its ability to borrow for other reasons. "Leasing probably would cost the same amount over time," says Greenberg, "but it didn't tie up capital or require us to put up any assets for collateral other than the computer system," which made it more appealing.
According to Bob Fine, president of BLT Leasing, virtually any piece of tangible "personal property" (including computers, office furniture, and vehicles) can be leased, even if it costs as little as $2,500. Leases typically run for 36 to 60 months, cover 100% of the cost of the item, and charge a fixed rate of interest.