Cloud computing is popular in part because it enables businesses to preserve capital and shift costs to the operational side of the ledger. Financing options such as leasing can provide the same benefits — if they are selected and set up properly.
Of course, all businesses want to be competitive, and one way to achieve that goal is to have the latest and greatest IT equipment. However, it seldom makes sense to purchase equipment outright if it will soon be outdated. The right leasing arrangement helps you keep your equipment up-to-date by giving you the option to obtain the next new thing at the end of the lease term. It also enables small businesses to obtain technology that might not otherwise be affordable.
Leasing can be attractive to the small business from a cash-flow perspective as well. Most leases require little or no cash up front, allowing the business to preserve capital and credit lines to invest in growth. Larger companies might use the lease to keep their quarterly earnings report within budget.
Leasing isn’t right for every technology purchase so it’s important to crunch the numbers. In the long run, leasing equipment may cost more than buying the equipment outright. And while the company that leases equipment generally can deduct only the lease payment for taxes, the company that buys equipment may be able to depreciate the full cost of the equipment in the first year.
The length of the lease is important to understanding the total cost of leasing. Lease payments are lower for a longer leases but a long lease results in a greater total cash outlay.
It also is important choose the type of lease that is right for your company. A capital lease is similar to a loan in that the equipment becomes an asset on the lessee’s balance sheet, with all of the associated risks and benefits. An operating lease means that you don’t own the equipment and can only deduct the monthly payment.
In negotiating a lease, determine whether there is a fair-market-value (FMV) buyout option or a $1 buyout option. With the FMV option the monthly payments are lower and you pay the fair market value for the equipment when the lease ends. The $1 buyout option allows you to buy the equipment for just $1 at the end of the lease term but the monthly payments are higher.
A lease agreement may require you to maintain the equipment in a certain way – and that can be costly. You will also pay for insurance for the equipment one way or another. Some leases require you to purchase the coverage; others add the cost into the monthly payment.
By leasing equipment through a technology provider such as IPC, you may be able to negotiate a better deal than if you work directly with a leasing company. More importantly, you benefit from a relationship with a partner who will keep your business, technology and financial needs in mind.
IPC offers a variety of leasing and financing options. Let us assess your situation and help you find the right fit for your business and IT needs.