The Benefits of Equipment Leasing and Financing for SMB IT Providers

By August 23, 2011Financing

Providing Customers with the Latest Products Without the Big-Ticket Costs

 

By Dave Rhoads

In order to boost productivity, save time, and eliminate costs, your clients need new desktops, servers, laptops, and software. Yet many businesses are unwilling to spend money, right now, to buy the latest hardware and software they need to maximally power their operations. By partnering with a leasing provider, you can provide your customers with the best of both worlds: Businesses can hold onto their hard-earned capital, and use the new computing technologies they need to remain competitive.

It’s not surprising, then, that leasing continues to grow in popularity among businesses large and small, across the spectrum of industries. In fact, 21.1% of survey respondents believe demand for leases and loans to fund capital expenditures (capex) will increase over the next four months, an increase from 14% in July, the Monthly Consumer Index by the Equipment Finance Industry found earlier this month.

Although many businesses may initially want to purchase equipment, savvy solution providers present clients with a leasing option early in the sales process. After all, leasing improves companies’ cash flow—a capability that’s extremely attractive at a time when many traditional financiers such as banks are less likely to lend money, even to well-established, financially sound customers. Access to the most recent technologies is the second-most common reason small firms lease equipment,  according to the National Federation of Independent Business(NFIB).

Companies most receptive to leasing include firms with three employees or less; companies that are 10 years old or younger; proprietorships, and those businesses headed by an owner who has an advanced or professional degree, according to research conducted by the NFIB. But businesses ranging from multi-national billion dollar conglomerates to government organizations and school districts, as well as small start-ups are asking their solution providers for leasing options.

On a Leasing Streak

Unlike purchases—which involve the outlay of cash, a credit card charge, or financing from another lender—leasing does not result in a large, lump-sum payment. Instead, clients pay a manageable monthly fee through the term of the lease, which may be two, three, four or even five years. Frequently, leasing enables customers to implement multiple solutions; with purchasing, they would be limited to one implementation per year, negatively affecting their competitiveness, productivity, and cost-cutting measures.

Often, the lease includes upgrades so customers continue to have access to new technology. Considering computer hardware becomes obsolete in only months, businesses that lease hardware retain their competitive edge far easier than those who buy, and are then stuck with, computer hardware until it is amortized over four, five years—or even longer these days. Once the lease expires, you collect your client’s old computers, freeing your client from concerns about destroying or recycling the now-useless machines.

Leasing has its detractors, many of whom say this approach is more costly than purchasing hardware outright. Like any economic decision, there are variables and it’s important to factor those specifics into each prospective client’s lease vs. buy equation. When a company purchases its computers, it no longer has access to that money. That capital, and any interest it was making, is gone, so already a cost is also associated to buying hardware, as well as the related software and services.

There are also tax ramifications to look into, when considering a lease vs. a purchase funded by cash or a bank loan. An operating lease may be tax deductible. In the case of a short tax life or accelerated tax depreciation, then purchasing may deliver stronger tax benefits.

Selecting the right leasing partner gives you and your clients a strong competitive edge. Some leasing firms finance not only hardware, but also software and services necessary to turn components into solutions. In addition, your leasing partner may provide your end-customers with an upgrade path, allowing them to continually stay ahead of the technology curve without dipping deep into their savings or seeking a hefty capital expenditure loan.

Like your business, a leasing firm should be service-oriented. There is no cookie-cutter approach to financing; seek-out firms with a personalized approach to address each prospect on a case-by-case basis, and someone who understands your business and what you need to succeed.

With leasing, customers can have the best of both worlds: Money in the bank and the latest computers in their data centers, on their desktops, and at their traveling executives’ sides.

Dave Rhoads is CEO of Blue Street Capital. What’s your biggest leasing-related challenge? I can help: dave@bluestreetcapital.com.