When looking at businesses today, the majority of them include computers as part of their assets and equipment that allows them to function on a daily basis. Certain industries may rely on computers more than others, but it’s virtually impossible to do business without a computer in the modern world.
From small tablet computers to full desktop systems, computers can play a small or large role in your business. So if you’re considering adding computers to your new business or if you’re trying to upgrade dated systems to be on par with the technology demands of today, how do you go about financing your purchase?
Computer leasing companies often provide a variety of different financing options to businesses of all sizes. Let’s look at some of the variables that go into how you should decide to finance your computers and the options available to you.
What Are Your IT Equipment Needs?
Before you even think about what kind of financing options to get from computer leasing companies, you have to know what kind of IT equipment you want to purchase in the first place.
But before you can do that, you have to know what the needs of your business actually are. As the tech world advances, the options available to consumers and businesses also increases. It helps to narrow down the needs of your business so that you can make a more informed and calculated decision on the type of equipment you need.
The last thing you want to do is spend more money than you need to on your equipment (or any part of your business, for that matter). By asking yourself these questions and spending some time with the answers, you can narrow down the search for computer equipment that is not only sufficient for your needs, but doesn’t cost you more than you should have to pay (i.e., avoid paying for “fluff” features that you’re not actually going to use).
- How many computers does our business need? Are you a smaller business that only needs 1 or 2 computers, or does your business require the use of a larger network of computers for your employees in order to reduce technological bottlenecks?
- What roles do our computers need to fulfill? Are you using the equipment for Point-of-Sale? Do you need it for communicate between employees and/or customers?
- Do we need state of the art equipment or can we suffice with a slightly older generation/model? If possible, opting for a slightly older generation can save the business a little bit of money. On the other hand, purchasing state of the art equipment will allow your systems to operate efficiently and “future proofs” your computer systems to not need to be upgraded for a longer period of time.
- How long do our computers need to last before being upgraded? Is it more important to purchase equipment that will “last longer” before upgrading, or are you okay with upgrading your systems more regularly throughout the years?
- What kind of software are our computers going to need to run? Some software needed by businesses may dictate a higher demand for more powerful computer hardware. You don’t want to purchase an underpowered system for your business if the software has higher hardware requirements to operate effectively.
- What additional equipment will we need to purchase in addition to our computers? Does your business require certain forms of equipment that’s not common for other consumer computer purchases?
- Do we need to “own” the equipment at the end, or are we better off “borrowing”? Making the distinction between owning and borrowing equipment (regardless of how long) can play a role in determining which financing option makes the most sense for your business.
Some computer leasing companies have experience with different types of computers and software and can be a great resource for you to call upon to help you zero in the technological needs of your business.
What Computer Financing Options Are Available?
When looking to computer leasing companies to finance your computer purchase, it can be a little overwhelming at first. Like other forms of financing in your business, it’s not too complicated once you see all the options available to you.
Computer Manufacturer Leasing
One of the most effective forms of “funding” is financing directly through the computer manufacturer of the computer equipment. Many computer manufacturers offer forms of financing, which in some cases may make the most financial sense for your business. This is because many manufacturers add very little interest or none at all for their leases. They also can easily refurbish the equipment at the end of the computer lease and resell the equipment for up to 70% of its original selling price.
However, not every business can fully take advantage of computer manufacturer leasing for a variety of reasons (e.g., credit score, business history, etc.). You can talk about this option with equipment leasing companies, who you trust will have your business interests at heart.
Bank Loans for Computer Financing
Another financially sound option is to get a loan from your bank. Loan rates through a bank may not be better than what you can find through computer leasing companies, but some banks can get very competitive for your business.
Bank loans typically require a longer amount of time to set up, which may stall the growth of your business. Credit score and time in business are also major factors to banks, so if you haven’t been in business for a while and/or your credit score isn’t near the top, you may have a hard time securing a loan. With a bank loan you can utilize Section 179 tax code where businesses can accelerate depreciation and write off the entire purchase price in year 1 off there taxable income, or they can depreciate the asset over its useful life and take a small tax break each year.
When you structure your IT Equipment financing on an equipment financing agreement you get section 179 tax benefits. With the passage and signing into law of H.R.1, aka, The Tax Cuts and Jobs Act, the deduction limit for Section 179 increases to $1,000,000 for 2018 and beyond.
Friends and Family Investments
Depending on your business, you may be able to get outside investments to fund your large IT equipment purchase. This is separate from what computer leasing companies may provide, as you will be going to an individual to get an investment who already has your best interests at heart. An outside investor may not care if you pay them back in a year. Delaying your payments out a year with no interest could be beneficial for you.
Computer Equipment Leasing Options
IT leasing companies provide additional forms of computer equipment leasing for businesses that may not be able to take advantage of the “great rates” promised by banks and other financial institutions. As many businesses are just starting out or those that may not have the best credit score yet, equipment financing companies provide an alternative way to get the IT equipment you may need to finance your data center. Equipment leasing companies may offer lower rates than banks.
Use our computer leasing calculator to calculate how much your computer financing payments could be and how much computer equipment you can afford to buy based on your monthly budget.
With computer equipment leasing structured with a FMV buy out business owners can write off 100% of their monthly payments off their businesses taxable income each year they lease the IT equipment. This will give business owners the biggest tax write off each year after year as long as you're leasing IT equipment. At the end of the term you can renew the IT equipment lease, negotiate a final cash payment with the IT Leasing company or return the IT equipment and upgrade to the latest and greatest IT equipment.
There are different IT equipment leasing options for your business to choose from.
- $1 Buy-Out Lease – Also known as a capital lease, this allows the company to lease the equipment for the set period of time and then buy it outright at the end of the lease for $1. The monthly payments for this lease are likely higher than other leases, but it comes with a $1 buy-out at the end of the lease, so companies may spend less money long-term.
- FMV Lease – Also know as an operating lease, a Fair Market Value lease lets the company use the equipment for a pre-determined amount of time. It gives a few end-of-lease options, including continuing to lease the equipment, returning the current equipment and upgrading to something new, or purchasing the equipment at it’s fair market value price.
- 10% PUT Lease – A 10% Purchase Upon Termination lease reduces the total lease amount so that the financing amount is 90% of the total cost of the equipment. At the end of the lease terms, the company has a chance to buy the equipment outright for the final 10%.
Final thoughts on your best option to purchase computers for your business.
Like most things in business, there is no single answer that is going to be the “one size fits all.” Each business has different needs, different customers, different goals, etc., but computer leasing companies can help you to narrow down the available options to what makes the most sense for your company.
Review the needs of your business, the total costs of the equipment you need to purchase, how much you’re willing to pay per month, and which type of repayment option makes the most strategic sense for you.
Talk these over with computer leasing companies, who will help you to understand the pros and cons of each option before you make a committed decision. Whatever option you decide, remember that purchasing computers is what will help to improve the effectiveness and efficiency of your business operations, which makes a computer purchase well worth it if you can properly integrate it into your business.
Make the right decision.
Be sure to find an IT equipment leasing company that specializes in IT equipment leasing because they have the asset management team to resale the equipment in case of a default so there internal cost of funds will be lower than equipment lenders that don't specialize in information technology equipment. IT equipment lenders have the capacity to refurbish and resale the equipment to recover losses or gain revenues after the term of the lease.
IT equipment leasing has an easier and faster application approval process than traditional bank loans.
At Trust Capital, the approval of an IT equipment leasing application only takes approximately 1 - 4 hours. The company offers an easy application process that can be found on their website. You won’t need to wait for a long time before your application gets approved. Trust Capital will also do business software financing. You will find fixed monthly payment terms from 12 - 60 months.