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.
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.
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
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
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.
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