Leasing and Financing
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Cash Flow. The biggest advantage of leasing IT equipment is that it helps you to acquire technology with a minimal upfront expenditure. Basically, you get the technology you need without significantly affecting your cash flow.
Tax Benefits. A second advantage is that your lease payments can typically be deducted as business expenses on your tax return*. Section 179 of the IRS tax code provides many advantages, but you’ll have to ask your tax consultant about that.
Obsolescence. If you’re not familiar with this term, it refers to the moment when you’re stuck with old, outdated IT equipment. With leasing, you can use a variety of end-of-lease options or pass the burden of equipment disposal to your lessor when your term is up. This frees you up to lease new, updated equipment when your lease expires.
Types of Leases
There are two lease/financing options that are available. These options include the Standard Lease and the Finance Lease. Below are explanations of each one:
Also known as a Fair Market Value (FMV) Lease, this is the most cost effective lease option. You will have three end of term options that include:
1. Purchasing the equipment for what is determined as the current market value
2. Returning the equipment to VAR Technology Finance and refreshing your technology (Tech Refresh)
3. Extending your lease on a month-to-month basis
Tech Refresh is the most popular end of term option. If you choose to purchase your equipment, you can choose what hardware you would like to keep and what you would like to send back. We will then dispose of your returned equipment according to EPA compliance.
Also known as a Dollar Out Lease, it has a 10% higher cost than an FMV option, but you own the equipment for a total of one dollar at the end of the term. The dollar never actually exchanges hands; it’s just a technicality that prevents the lease from being classified as a loan. If you are certain that you want to own the equipment at the end of term, and have the EPA compliant disposal methods in place, then the Finance Lease is your best option.
A business is comparing standard lease to a finance lease for $75,000 of equipment*
$2000 per month for 36 months with a standard lease (FMV)
$2300 per month for 36 months with a finance lease ($1 Buyout)
= Savings of $10,800 over a 36 month term
If you want to keep your technology current, the standard lease is the best fit and it also has the lowest monthly payment. Because technology rapidly depreciates, the value in IT equipment is in using it, not owning it. It also provides the greatest amount of flexibility at the end-of-term.
Initially, many customers want to keep their equipment. However, at the end of the term, they realize how far technology has advanced and they are left behind with obsolete equipment. It’s important to determine your specific needs before choosing a lease/financing option.
There are a lot of other benefits like low, predictable payments, total solution financing (hardware, software and services), credit preservation and convenience.
If you want to know more about the benefits of leasing, contact a Finance Leasing Specialist at email@example.com or call (866) 469-7111.