Leasing

According to a Business Week article about 12% of small companies are currently leasing one or more of their computers, and that number is expected to double in the near future.

Software/Hardware Leasing can be an attractive way to finance a computer system. It's true that the rates are often higher than other financing alternatives, but in some cases it makes compelling business sense. Here we discuss the pros and cons of equipment leasing, and suggest some Leasing companies that we and our clients have worked with.

Advantages
Perhaps the most compelling reason to lease is that you can acquire the technology you need while preserving your cash and other sources of funds for growth opportunities and other operating necessities.

The rates for software or hardware leases are usually higher than most (but not all) other forms of financing. However, very little money is needed down, and the financing is usually extremely quick and easy to obtain. You can often acquire $10,000-$50,000 without even submitting a financial statement.

Many types of leases also offer excellent tax advantages, since they can be structured so that your payments are booked as expenses. On the other hand, if you obtain a bank loan and purchase the equipment/software, you have to amortize that equipment/software over 5 years. If you are profitable, that can have a negative effect on your cash flow.

Return on Investment
No matter how you finance your purchase, the most important benchmark to analyze is your expected return on investment. Will your monthly payments be worth it to your business?

You can sweat the details of your interest rate levels, but the truth is you are going to be putting out $xxx a month to have the system. Will the system be more valuable to you than that?

For the sake of this discussion, suppose you finance $30,000.00 and your monthly payment is $1,200.00. The first question to ask yourself is, "Will I be able to operate with less people?" If the answer is yes, than the decision is a no-brainer, because even if you need only one less person, you recover your monthly payment and more.

Other benefits, such as the ability to offer better customer service, improved inventory control, and improved access to information are much harder to measure. Those are issues that each company must benchmark for themselves.

Lease Arrangements
One of the easiest lease arrangements to work with is the one in which the leasing company allows you to purchase the equipment or software (up to the level they are willing to finance) and they reimburse you. This gives you the flexibility to easily shop around for the best price and vendor. We recently acquired a lease like that and it was extremely beneficial to us, as we purchased the equipment over a 3-month period.

Leasing companies our clients have used: