Leasing provides for improved cash flow and asset management, lower life-cycle costs, protection against obsolescence of equipment, ease of upgrade disposal, and minimization of maintenance.
Improved Cash Flow and Asset Management
Due to the sizable cash outlay involved in equipment acquisitions, many businesses lease to conserve capital. Large enterprises have found that they can minimize risk and simplify their budgeting by leasing, preferring to spend their cash on appreciating assets and invest capital in the business. Having a fixed monthly lease payment enables them to budget and manage their technology investment dollars over time. For small and midsize companies, low monthly lease payments enable acquisition of equipment that would otherwise prove to be too costly. Leasing helps smooth out spikes in the budget and levels IT expenditures. In many cases, no down payment is required; therefore, the company is able to retain cash that can be invested elsewhere and preserve its existing credit lines for unexpected expenditures.
Leases can be designed to meet a company’s balance sheet needs and minimize impact to the company’s financial infrastructure (i.e., cash, capital equipment, depreciation, etc.) Payment terms can be matched to customers’ revenue or cash flow requirements, and payments can remain predictable for the term of lease. Leasing also avoids the need to go through the capital budget approval process for both base equipment and upgrades, thus speeding up the implementation and realization of the benefits of the solution. Finally, leasing provides a hedge against inflation by having fixed monthly payments incorporated into budgets.
During uncertain economic times, it can be more important than ever to preserve cash reserves and keep credit lines open. In an economic downturn, companies still must rely on up-to-date, high-performance IT equipment to run their business. Leasing offers businesses the flexibility to decide later whether to upgrade their equipment or to purchase it at fair market value (FMV) at the end of the leasing period. In the meantime, their payments remain fixed and predictable. Thus, leasing both maximizes a company’s options and minimizes its vulnerabilities.
Because the company pays for only the use of the equipment, an operating lease can result in considerable savings compared to outright purchase or scheduled purchase payments. At the end of the term, the lessee has the option of simply returning the equipment, purchasing it outright at fair market value rates, or extending the lease usually at a discount.
A lease can provide for an upgrade to be added to base equipment for a small monthly increase, coterminous with the base equipment. Leasing also provides an effective disposal strategy for used equipment. At the end of the lease, the leasing company takes possession of the equipment and assumes responsibility for its disposal, so there is no need for the lessee to invest time and energy in disposal.
Because the Lessor passes on to the Lessee all the rights and warranties on leased equipment, leasing ensures that the maintenance burden is minimized because most of the equipment is under warranty.
