How Leasing Business Equipment Eliminates Anxiety

Business.com / Financial Solutions / Last Modified: July 7, 2017
Photo credit: Rawpixel.com/Shutterstock

Computer leasing and financing strategies can allow you to finance properly with operating or capital lease options, as well as project financing and software finance options.

Many companies do not fully understand all the benefits that come from leasing and financing your technology, telecommunication and software needs.

We're discussing the acquisition and financing of computers and technology in a couple segments of your business. The proper term for this type of financing is "technology lifecycle management," which is what the pros call it. Our customers keep it a bit simpler: "Should I buy or lease my firm's new computers, software, and related products and services?"

Two old adages related to leasing still ring true when it comes to the technological aspect: Businesses should finance something that depreciates, and companies should buy something that appreciates in value.

Most business owners and consumers know very well that computers depreciate in value. Systems we paid thousands of dollars for years ago are now hundreds of dollars. Walk into any big-box retailer and see the dramatic moves in technology.

Business owners who finance technology demonstrate a higher level of cost-effectiveness. Companies want to reap the benefits of the technology over the useful life of the asset and more evenly match the cash outflows with the benefits.

Leasing and financing your technology allows you to stay ahead of the technology curve. That is to say, you are always using the latest technology as it relates to your firm's needs. Also, you're minimizing cash outflow as it relates to the spending you incur on computers, software and other technology.

Businesses that lease and finance their technology needs are often working better within their capital budgets. Bottom line: you can buy more and buy smarter. 

Many larger companies have compelling issues with balance sheets and return on assets. They must stay within bank credit covenants and are often measured on their ability to generate income on the total level of assets being deployed in the company. Lease financing allows those firms to address both of those issues. Companies can choose to employ an operating lease structure for their technology financing, which is more prevalent in larger firms but works almost as well in small organizations.

Operating leases are off-balance sheet: The firm adopts the stance of using technology, not owning technology. The lender owns the equipment and has a stake in the residual value of the technology. The main benefit for the company is that the debt associated with the technology acquisition is not directly held on the balance sheet, which optimizes debt levels and profitability ratios.

At the end of those operating leases, which are usually 36 months long, the customer has these options:

1. Returning the equipment
2. Buying the equipment (not as likely)
3. Negotiating an extension of the financing for continued use of the computers, technology, etc.

Companies that have recently acquired computers and technology can negotiate a sale leaseback on those same assets. This financing strategy brings cash back into the company, as the firm has employed a leasing and financing strategy built on using technology, not owning technology.

To summarize, these are the benefits of lease financing:

  • The company can stay ahead of the technology curve.
  • Computer leasing and financing has significant benefits in regards to balance sheets and income statements.
  • The firm has flexibility with respect to buying new products, returning existing technology, and generating cash flow for purchases already made.

Many of the benefits we have discussed relate to leasing in general. However, technology and lease financing are perfectly suited to the business financing strategy of leasing.

Working capital saved on computer leasing and equipment leasing, in general, allows a company to use that capital to grow revenues. Depending on which types of leases are used, there are also tax benefits associated with leasing.

With the current focus on the environment, customers can work with their vendors to return unused equipment at the end of the lease for proper green disposition. Speak to a trusted, credible and experienced business financing advisor who can provide you with the best strategies on computer leasing and financing.

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