Few industries grow at an exponential pace – and fewer still grow as rapidly as information technology. With this growth comes the constant need for change and renewal. Thousands of businesses suffer from a lack of modernization. Healthcare systems are heavily plagued by this issue, for example. Some hospitals still rely on faxes and pagers to relay information between staff while utilizing storage systems and data centers older than some of the patients they care for.
But hospitals and clinics aside, nearly every industry is plagued by either the impact of refusing to upgrade to newer technologies or the financial hit of making the jump without adequate planning or due diligence. Here you can learn all about information technology equipment leasing so it can help you better understand your business technology needs. Whether it’s an ancient AutoCAD program used in conjunction with a CNC machine several years older than its operator, or a museum that keeps track of incoming visitors and manages a CCTV system through Windows 95, the need for technology modernization is an ongoing and serious issue for businesses all around the world.
Countless companies specialize in helping these companies transition into newer, more modern technologies, with all the inherent benefits therein. But the actual burden is shouldering the financial cost. Modernization isn’t cheap, and even though specific component part prices have begun to stabilize after the double whammy of a global supply chain crisis and a cryptocurrency boom, it’s still not cheap to migrate to an entirely new data center, create one yourself, set up a modern corporate server, or otherwise update your systems at work. Naturally, this is where equipment leasing comes into play.
Why Should You Consider Information Technology Equipment Leasing
An equipment lease is like any other secured lease – you pay for the right to use the equipment provided to you, either by the lender or through an affiliated or approved vendor, and upon the end of the lease term, you return the equipment to the lender. They have the right to sell it afterward, offer new equipment in the form of another lease, extend the current lease with your agreement, or offer to sell you the equipment for the remainder of its value. Equipment leases are typically more efficient on your business’ coffers than taking out a cash loan from a bank and using the money to acquire the equipment directly.
For one, a lease saves you the trouble of finding a buyer or broker for your equipment when it’s finally time to modernize. It also saves you the hit of getting rid of all the equipment at fire-sale prices or worse. Businesses need specific requirements to be credit-worthy, but some types of credit are still easier to qualify for than others. Secondly, secured leases may be easier to qualify for than a straight cash loan from a bank. A secured equipment lease may be something your business can swing even in its initial stages, provided you have solid revenue reports, a robust business plan, and healthy personal credit history as the business’ managing owner or partner.
Who Can Lease IT Equipment?
The requirements for leasing information technology equipment differ from lender to lender. Depending on what you are looking for, you might need to be around for a few years before finding a lender to offer you the kind of lease you need to equip your business. However, modernization is not something most startups are concerned with. Suppose your company has been around long enough to carry heavily outdated hardware and software. In that case, you will generally have the books to convince any severe lender that your business is a sound investment. As with a bank loan, companies that specialize in equipment leasing will want to see a few different things to determine eligibility, including:
- An up-to-date business plan.
- Bank statements.
- Business (and personal) tax returns.
- Certain financial statements.
- An equipment quote from an approved third party (if the lender is not also the vendor).
- And more.
The more expensive the lease, the harder it is to qualify for. It is usually in your best interest to discuss the terms and requirements of the lease with the lender directly before getting a quote or committing to the lease. A CPA or a business attorney may help you review the lease terms and ensure everything is in order.
Common Types of Equipment Leases
When opting for an equipment lease, you will generally find lenders offering either capital or operating leases. The general difference is that a capital lease is usually issued with the understanding that you will probably opt to buy the equipment at the end of the lease and own it outright. With a capital lease, the equipment will effectively be listed as your property on your balance sheet, although you must continue making payments.
However, you still do not own equipment leased through a capital lease – not until the term is over and you’ve bought it out. An operating lease is no different from renting equipment. As the understanding is that you’re only making payments for the right to use the equipment, the monthly payments are lower. This type of lease is usually ideal for information technology of any kind. Your company will use the equipment for as long as the lease runs, swap it out for something better, or renew the term. These types of equipment leases do not come with a buy-out option.
The Information Technology Equipment Leasing Process
Once you’ve decided to modernize, it’s time to commit to the process. The first thing you need to do is find the right lender. Various online businesses provide financial assistance to businesses looking for equipment leases, whether heavy equipment (construction and renovation), IT equipment (server farms, data centers, computers, and more), or anything else. You may also find lenders that specialize in information technology leasing. After finding the lender of your choice, prepare all relevant documents. Every lender has a unique application process. Some work much faster than others – you might receive a response to your request within the week or may have to wait until the end of the month.
Depending on what you provided, your chosen lender may continue to ask for further documentation to deliberate your lease. Once you’ve received approval for your lease, you will receive a leasing agreement you must review and sign. Always review leasing agreements with a legal professional before signing. Then, you will either receive the funds for the equipment, or the equipment itself, depending on the arrangement. The first payment is usually due after all equipment has been delivered. While you can optionally make a down payment on most leases, it isn’t required, unlike most cash or equipment loans.