Executive Education

7 Reasons to Lease, Not Buy, Your IT Equipment

Bob Necessary, the president of VeriStor Capital

Leasing. We consider it readily when we look at new cars. It gives us flexibility and additional options for often a lower out of pocket cost. So why don’t we consider leasing when it comes to our business’ IT equipment?

Often businesses don’t consider a lease because they have the necessary cash on hand to make an outright purchase. But, since IT assets rapidly depreciate over time, using cash may not be the best option when other higher yield, revenue-generating assets can often deliver a better return on investment.

In other instances, businesses often leverage a bank line for new IT purchases. But consider how the typical bank line rates increase, combined with the depreciation of the IT assets, and you can quickly deduce the incremental cost of that IT equipment investment.

It’s time to consider leasing as a powerful and viable option for acquiring IT equipment. Here are seven reasons why:

  1. Only Pay for the Financing You Use. Your bank will charge you a fee on your line of credit, even if you never use it. Leasing, on the other hand, only charges for the financing you use. This means you can remain in better control over your finance costs. This also enables greater financial predictability, without variable rates that can change monthly payments.
  2. No Down Payment. When you secure a loan to pay for IT equipment, you’ll often need to fork over a down payment – sometimes as much as 20 or 30 percent. This can quickly erode your working capital. When leasing, you don’t need to touch that valuable cash, preserving your cash flow.
  3. Greater Flexibility. Loan programs are rigid and structured. This means they can’t accommodate individualized requirements, such as no payments for 90 days or programs that account for cyclical fluctuations. Instead, leasing companies can deliver the flexibility companies need to get new equipment up and running, for example, or forgive a missed payment during seasonal low times.
  4. Diversification of Funding Sources. Borrowing too much from a bank can limit your ability to get future loans. This can restrict your credit potential during times of emergency. On the contrary, leasing expands and diversifies your funding sources, giving you greater leverage when it’s needed most.
  5. 100% Financing – Beyond Just the Hardware. Simply put, you can’t get 100% financing from a bank. But even more, when you engage a technology-savvy leasing company, not only can you get 100% financing for the cost of your equipment, but also the labor, installation and even training and consulting needed to get your new investment up and running.
  6. Minimized Asset Risk. Loan programs often require liens on all of your company assets, including receivables, property and inventory. Leasing companies only use the leased equipment as collateral, minimizing your overall asset risk exposure.
  7. It’s Tax Deductible. When leasing IT equipment, companies are offered the flexibility to expense the product acquisition as either a capital expense (CapEx) or operational expense (OpEx). When accounted for as an OpEx item, companies can fully expense lease payments as a rental expense with valuable tax deduction options.

Next time your IT department requests a new server or needs to fund its desktop refresh project, consider the value of leasing. It may provide the significant cost savings and predictability you need to improve your bottom line.

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Bob Necessary
Bob Necessary is a 30 year veteran in the technology financing market with years of experience in building financing programs that save companies valued working capital, while improving cash flow and saving money.