Benefits of IT Financing

In 2010, IT spending sharply increased as businesses emerged from the recession. Forrester Research and other technology research specialists, such as Gartner, agree that the key to sustained growth in the emerging economy is through increased IT investment, which is the primary reason for the growth in the IT market. Companies that commit to investing in IT infrastructure will be at an advantage over those that do not.

Forrester Research predicts growth in U.S. IT spending will continue in 2011 by 7.4% over 2010, with early forecasts for 2012 showing even higher growth at 10.4%. Unfortunately, not every business has the capital to purchase new IT equipment; but, that does not mean those companies cannot obtain new equipment.

In a 2005 statement to small and mid-sized enterprises (SMEs), a Gartner analyst pointed out that many businesses were falling behind because they failed to take advantage of an important resource to keep their checkbooks balanced while keeping up with technology: IT equipment leasing. While the importance of IT leasing was originally expounded in 2005 by Gartner, the analysis has continued to be corroborated through the intervening years, including in a report by Forrester entitled, “Back to Basics: Why IT Leasing Makes Sense in the Economic Meltdown.”

The Equipment Leasing Association estimates that over 80% of U.S. companies lease IT equipment in some capacity. However, Gartner analyst Francis O’Brien states that only 12% of SMEs lease at least 50% of their computers, and only 3% lease all of their computers. O’Brien is baffled by these numbers because, in her expert opinion, “Leasing should be a primary vehicle for [SME] technology initiatives.”

According to O’Brien and other IT leasing experts, the following benefits make leasing not only a viable option but, also, a necessary step in ensuring business growth:

  • Cost Reduction – Leasing is an affordable IT financing option because leasing companies do not need to recoup the entire cost of the equipment from the lease. Much of their profit comes from selling the equipment at the end of the lease term. In fact, many leasing companies, such as Dell, have offered promotional terms that include zero percent financing for up to 20 months. (don’t want to reference any competition, please remove the statement regarding Dell financing option)
  • Capital Conservation – Having working capital and open lines of credit are important in this economy. Companies that purchase IT equipment quickly lose their capital due to asset depreciation. Leasing is also a means of keeping available lines of credit open for opportunities that can more directly translate into income and profit.
  • Decreased Depreciation and Maintenance Losses – Most businesses are depreciating their IT equipment over five years, but, according to corroborative research by the Robert Francis Group and Gartner, it is more cost-effective to replace computer equipment after three years. However, thisrequires the equipment to be kept in storage for two years or to be written off two years before it is fully depreciated.
  • Tax Breaks – Most types of businesses can deduct 100 percent of their lease payments as an operating expense.
  • Budgeting – Because lease payments are consistent on a monthly basis, overall cash flow is more predictable, allowing for more accurate budgeting.
  • Simplified Asset Tracking – Most leasing companies offer online asset tracking tools as a free service. (we don’t offer this service so would like to remove and replace with another constructive sentence)
  • Disposal Compliance and Expense – Most businesses are now required to adhere to strict disposal regulations regarding computer equipment. With leased equipment, the leasing company takes care of disposal.
  • Leasing companies provide a valuable resource, especially for small to mid-sized enterprises. Business market researchers all agree that leasing provides all of the above benefits and more. Businesses not taking advantage of these benefits only stand to lose out to those that do