Pros and Cons of Leasing Hardware

Technology seems to change every day. There is a continued acceleration in advancements, improvements, and capabilities. Starting with mainframes and amber or green illuminated monitors, information technology has the rest of the business community in a state of playing constant catch up or teetering on the cutting age. Attempts to keep up with platforms like IoT (internet of things), Converged Platforms, AI, and Software-Defined Networking, have resulted in technology becoming obsolete at a faster rate. What will be the next big thing? How will it benefit business drivers while keeping the finance side of the business happy? With various manufacturers, each doing their own enhancements, how do you find the right solution without breaking the bank as an item of capital expenditure?

Traditionally, the hardware used in today's computing environment has been purchased. While many have embraced leasing for office items like copiers and printers; hardware both for infrastructure and end-user devices, have lagged. There are pros and cons when it comes to leasing, but when working with Convergent Technologies Group, the pros always outweigh the cons.

The Pros

1. Leasing can help with life-cycle management. A company can create standards and refresh equipment based on a lease schedule, many companies do so on a 36- or 60-month calendar. The benefit is that there is no graveyard of obsolete equipment, assets to dispose of, company data left on devices or users feeling slighted when new equipment is purchased for another group or department.

2. Leasing can provide a set monthly budget and becomes an OPEX over a CAPEX, depending on your business needs.

3. Warranty support can match the lease term and help prevent out of pocket expenditures. Remember if leasing for more than 36 months, a company must purchase an upgraded warranty. Convergent Technologies Group can help identify the best support required.

4. Pay as you grow. With Hewlett Packard Enterprise GreenLake you can lease equipment and build the equipment into the lease as a 3-year growth plan. The equipment is put on location for the entire plan and you only pay for the equipment you use. Whether your business is growing or shrinking, the equipment is flexible to your needs and financial responsibility.

5. Often, a lease can be created with no upfront or minimal down payment.

The Cons

1. A company will pay more for the equipment due to leasing rates. Keep in mind, many manufacturers have a financial services group and can extend very low and competitive rates in some instances.

2. End of lease terms – The return of outdated and expiring lease equipment may be cumbersome. Find out the leasing terms before signing any leasing agreement.

3. All monthly leasing payments must be made even if a company stops using the equipment. Investigate how long equipment will be used and deployed. With the rapid pace of changing technology, equipment is normally leased for a maximum of 3-5 years. Servers and storage have seen lease terms up to 60 months in many cases.

4. Many leasing companies do not know the ins and outs of technology. Make sure you work with a technology company like Convergent Technologies Group who understands the nuances of both leasing and technology and the benefits of leasing as a financial solution.

Know the Terms

Capital lease- This is comparable to a loan. The equipment remains as an asset on the organization's balance sheet and includes depreciation.

Operating lease- The equipment's ownership is held by the leasing company and is an operating expense.

Fair-market value (FMV)- Equipment can be purchased at the end of the lease for its fair market value.

Buyout Options- The buyout is the dollar amount owed at the end of the lease. An FMV option and a one-dollar buyout option are choices in most leases. The dollar buyout option means the equipment may be purchased for one-dollar when the lease expires. FMV leases are usually lower than one-dollar buyout leases. If the company wants to upgrade to new technology when the lease expires, move forward with the FMV buyout.

Terms- A predetermined number of months the equipment will be leased. Leases for computer equipment run 24, 36 or 48 months.

Insurance- Learn if the equipment must be insured and whose responsibility it is to ensure it.

Master Lease- This is a fluid lease contract that allows a firm to add equipment to an existing lease. The new lease payment is then recalculated.

Early termination- Find any prepayment penalties if you plan to terminate the lease early. In this case, the company needs new technology sooner than originally planned.

Leasing can be confusing, but as your advocate, Convergent Technologies Group can assist any client in selecting the right plan and lease to facilitate new technology acquisitions.

About Convergent Technologies Group

Convergent Technologies Group, an HPE Platinum Partner, has been helping clients improve efficiency, reduce costs and increase profits since its founding in 2005. A full-service solutions-based IT company headquartered in Midlothian, Va., CTG provides businesses and organizations with the best in class solutions by partnering with the most innovative companies in the industry. CTG designs, manages and deploys cost-effective solutions specifically aimed to address clients’ unique technology needs.

About the Author

Elizabeth Foster has been with Convergent Technologies Group for 3 years. She has years of experience working in information technology with various types of businesses. Elizabeth currently supports our sales and marketing team.