Asset ownership can be a disadvantage, look at the value of leasing
There has always been resistance in a number of IT organizations to equipment leasing. Business and IT executives frequently believe that their corporate financial executives are opposed to leasing because of financial management philosophies or costs. Our studies have uncovered other reasons for finance executives to reject leasing, the primary one being that their IT departments do a poor job of asset management and, therefore, the advantages of leasing are lost. We also recognize many executives do not understand the value of leasing or how to go about it so they opt for other solutions.
15 Reasons to Lease
We have identified 15 advantages that can be realized by leasing. Not all companies will be able to leverage all of these, but IT executives should understand the options and determine which ones are applicable and most relevant to the different technology equipment purchases that are on the drawing boards for the year.
1. No down payment required.
Leasing eliminates the down payment expenseswhich for a purchase deal could be up as much as 20 percent of the overall costthereby protecting budgets from a big first-year financial hit.
2. Credit line or capital preservation.
Equipment leasing (unlike a financed purchase) has no impact on corporate credit lines or capital.
3. Cost of capital.
Except for a few major enterprises, the cost of capital is high, ranging anywhere from 6 to 14 percent in the U.S. This can add significant costs to the total price of the acquisition. Conversely, lessors usually offer extremely attractive interest rates to make the products more desirable and encourage an ongoing relationship. Companies can get leasing rates that can approximate a 0 percent loan or less.
4. Pay per use
. Leasing is a pay-per-use model. Companies can write a single leasing contract but take delivery of equipment as needed and only pay for the equipment once it is on board. Moreover, software and services can be bundled into the price, so that fixed payments are preserved and the added costs are included in the pay-for-use model.
5. 100 percent financing.
Many lessors are willing to structure the leasing payments to cover software and services as well as any "soft" items that one may desire to bundle into the financing. Thus, lessees are not burdened with undesired or unexpected upfront fees.
6. Fixed or flexible payments.
Leasing payments normally are fixed over the life of the lease, but flexible financial arrangements can be agreed upon.
About the author
Mr. Braunstein serves as Chairman/CEO and Executive Director of Research at the Robert Frances Group (RFG). In addition to his corporate role, he helps his clients wrestle with a range of business, management, regulatory, and technology issues.
He has deep and broad experience in business strategy management, business process management, enterprise systems architecture, financing, mission-critical systems, project and portfolio management, procurement, risk management, sustainability, and vendor management. Cal also chaired a Business Operational Risk Council whose membership consisted of a number of top global financial institutions.