Computer Leasing for Small Business: Does it Work?
Small business equipment leasing isn’t a new thing. Businesses have been renting machinery, vehicles and other ‘hard’ assets for many years. But what about computer leasing or other IT equipment and software leasing, some of the so-called ‘soft’ business assets?
Is it possible?
Is it financially sound?
Read on to find out.
Ok, so you’re a small business owner and you’re faced with a dilemma. You need state-of-the-art business computer equipment and software to progress the growth and function of your business. What’s the best way financially to get that equipment? The choices are pretty straightforward on the surface –
- Buy outright if your company has the available funds
- Get a loan to buy outright
- Lease/rent the equipment
Let’s briefly look at each option and see which would make the most practical and financial sense.
Buying outright with company capital
On the face of it, this seems a good solution. One straightforward purchase means no ongoing payments, no interest payments on borrowed funds and you own the assets.
However, on the downside, you’re tying up valuable company capital which may be needed for other things. Added to that, and perhaps the most concerning thing of all, is the fact that you’re investing in assets which will be pretty-well worthless in a few short years. IT equipment and software development moves on at such a fast pace that your shiny new business computer system will depreciate rapidly and in as little as 3 years, or even less, will be virtually obsolete.
At that point, you’re facing the same old question – do you buy from capital, borrow to buy or lease. It’s a bit of a merry-go-round, isn’t it?
Borrow to buy
If you don’t have the capital to buy your new IT equipment, you’ll be looking to borrow funds. This can be tricky if you’re thinking of going to your bank. Banks are notoriously slow in granting loans to business, often taking weeks or months to reach a decision. Also, they are hesitant to lend for the purchase of quickly-depreciating assets which might not be easily recoverable and sold if the loan is defaulted on.
Even if you do manage to get funding, as with the previous scenario, you will face having to go through the whole procedure again a short time down the line when the computers and software have become obsolete. Your repayments will be affected by the fluctuations in bank interest rates, which could make a significant difference to your monthly payments. Also, with the borrow-to-buy option, you’ll also have paid considerably more in interest payments for your equipment than if you’d used capital, but it will be just as out-of-date.
Business computer leasing, for small business particularly, is a comparatively new way to obtain necessary IT assets for your company, but it’s growing apace. SME’s are realising the huge benefits of computer leasing over the buying-outright options and more computer and asset finance companies are stepping up to offer this.
There are quite a few advantages to going this route.
Firstly, there’s no capital investment and you won’t tie up valuable funds on a steadily depreciating item. Your accounting should be simpler, unless you’re a larger PLC or similar when you will be affected by the incoming IFRS16 accounting rules.
The biggest benefit, however, is massive. Depending on the type of lease agreement you have (finance lease or operating lease ) you will be able to update your IT equipment regularly, ensuring that you’re always using the latest technology – important if you want to keep up with bigger and wealthier competitors, without the need for significant capital investment. You spread the cost over a period of time, making it easier on cash flow and budgeting.
At the end of the lease term and again depending on your computer leasing agreement, you may be offered the option to buy the equipment or simply hand it back for disposal by the lease company – a big advantage if you have a lot of desktop systems, for example. It can be costly to dispose of such items in bulk within government guidelines.
It is also possible to get asset management support to help keep track of the equipment and lease contracts.
Perhaps best of all, you’ll never need to be faced with the ‘buy, borrow or lease?’ question again. You can just take a new lease agreement at the end of the term.
Looking at and comparing these three financing options, the conclusion can be drawn that the best way of acquiring equipment for many small business can be by leasing, especially for computers and IT equipment. Leasing laptops for small business executives or R&D staff, for example, could be a cost-effective and efficient method of keeping them functioning on the highest level of technology, while not breaking the bank.
Where to get a leasing agreement?
Many computer suppliers now offer computer leasing arrangements for business and these may be the places which first occur to you to get your leasing agreement. However, bear in mind that they each have only their own terms to offer, from the one finance company that they’ll deal with, which may not be the most beneficial for you.
Think instead about approaching an asset finance brokerage company. These companies are experts in managing this type of agreement. Being brokers, they work with a range of financial partners and not just one, so can source the best deal for you and your business.
If you’re exploring the possibilities of leasing computers or other equipment for small business use, chat with us at Maxxia by phone on 0845 643 1319 or via email today and we can help you to achieve your business goals in the most cost-effective way for you.