In today’s global economy, your toughest competitor may no longer be down the street or even in the same country. The harsh new reality is that the sun never sets and the competition never sleeps.
To stay ahead, small businesses must find and fund innovation that sets them apart. But how do you acquire assets that enable innovation when you’re short on capital?
John Callies is the general manager of IBM Global Financing (IGF), the financing business segment of IBM – he knows quite a bit about financing technology purchases.
There was a time when the only option was to pay cash, put it on your credit card, or take out a loan. Each of these has pros and cons. Paying cash consumes capital up-front and offers no protection if the equipment is damaged or stolen. Paying by credit card sometime comes with purchase insurance for loss or theft, but you still need to pay off the balance in the short term to avoid costly interest charges. Taking out a loan turns large up-front expenses into low monthly payments, but you risk owning technology that is obsolete by time you’ve paid for it.
For many companies, leasing is becoming one of the smarter and more creative ways to fund innovation.
“In many situations, leasing even a portion of technology assets can provide greater benefits than an all-purchase strategy,” says William Roch, research director of IDC’s Leasing Evaluation Service in a recent IDC whitepaper.
Asset-based lending companies, like IBM Global Financing (IGF), the lending and leasing business segment of IBM, offer leases based on the marketable value of the equipment being financed. Asset-based lenders know there is an opportunity to make money off the asset when the lease ends, either as a refurbished machine or through the sale of its parts. Regular banks don’t have these capabilities, but for a firm like IBM, technology is in its DNA. IBM understands IT valuation and can build that into the leasing package.
There are several benefits to leasing IT equipment:
Consistently refresh equipment: If keeping up with advanced technology is important to you, leasing gives you access to this through short contracts. At the end of lease term, manufacturers will generally let you upgrade to the next best model or technology, usually with the same lease terms.
Freedom to Move: The flexibility of leasing lets you look for better price and performance deals. Where the standard practice for outright purchase of new IT is to depreciate equipment over a 3-5 year period, shorter-lease terms ensure that your business won’t be stuck with obsolete equipment before fully depreciated.
Focus Capital on Business, Not Equipment: Leasing empowers a business to conserve capital for investment into the business, rather than in the infrastructure required to run it. Regulators today have set specific requirements around financial liquidity as a percentage of asset base.
No Impact on Ability to Borrow: The majority of Full Market Value technology leases are structured to qualify as operating leases (depending on local accounting and tax standards), making the payments operational rather than capital. Since the leased equipment is not included as an asset, leases have little impact on a company’s ability to borrow.
Disposal Risk Reduction: IDC forecasts that over the next four years, some 800 million PCs will be retired. IBM Global Financing can handle disposal in compliance with all federal, state and local environmental laws.
Leasing can be the best option for enabling innovation that helps your business succeed. Choosing the right lessor is critical. Businesses should escape the typical “lowest-rate” trap and do their due diligence on the financial strength, technology expertise, terms and conditions, ease of administration and disposal capability.