Every business from time to time has to consider a potentially expensive information technology equipment replacement or upgrade. For example, a start-up business often has to make an initial investment in servers, workstations, software packages or other technologies. Sometimes, even the most well established businesses don’t plan appropriately for hardware or software upgrades, and can be surprised by the amount of capital needed.
IT equipment leasing is a clear option for companies in these types of situations. But any business, regardless of the length of time it’s been established, should carefully weigh the pros and cons of leasing.
Using the example of a start-up business, one can easily identify a case for leasing: the startup can acquire its equipment and software without having to fund a large initial capital outlay. But like any situation, there are tradeoffs: long-term costs of the equipment can actually exceed what the assets are worth, and the startup must have good credit in order to obtain reasonable leasing rates, and an adequate credit line to support the purchase.
For the more established company looking to find a way to ease the pain of a hardware refresh cycle, leasing can certainly help by moving those costs from the capital line to the operating line. In some cases, depending upon the length of the lease term, your company may be able to claim the items leased as capital, thereby affording it some attractive tax benefits. According to the Small Business Administration, tax benefits for the assets can be claimed if the lease is in excess of five years. Sometimes a seven-year commitment is required, depending on the company’s unique situation.
Although the aforementioned situations can sound attractive, lessees are likely to be held to a high standard for end-of-term return of the equipment. For example, many leasing companies expect the equipment to be returned to them in “good working order.” This is an important factor to consider, because a five-year-old PC may not be in the best working order at the end of its term.
Consider all leasing factors carefully, and consider the likelihood of your equipment being managed properly throughout its lifecycle, in order to avoid end-of-term “surprises.”
The Small Business Administration’s website has some excellent guides, which clearly define some of the more common pros and cons of IT equipment leasing, and can help guide a company in its decision-making process.
If in doubt about IT equipment leasing, consult your CPA or financial planner to ensure that your company is making the right decision. Like any important business decision, carefully weighing the pluses and minuses of a leasing solution is the most important part of the process.
Patrick Tamburrino is the president and technostrategist of tamburrino inc., an IT strategy, support and management company in Memphis. He can be reached at email@example.com, 489-8408, or via the Web at www.tamburrino.com.