Give your business a new lease of life

26 Apr 2005

Are you putting off investing in technology because of financial pressures? If so, maybe you should consider the range of leasing and other financial packages that are available from manufacturers, resellers and mainstream financial services organisations. In fact the days of simply writing a cheque for that PC refresh or new storage area network, seem to have long gone. Industry sources suggest that well in excess of 50pc of IT purchases are now funding by some kind of borrowing.

If there is a significant hardware element to a purchase or some other tangible asset that a finance house can consider, then leasing is the most popular form of financing. Leases fall into two main types — finance and operating leases — with the later more popular in Ireland. Finance leases are akin to hire purchase — you make agreed monthly payments and from the beginning of the lease the assets appear on your balance sheet. In contrast an operating lease is not considered capital expenditure and the assets remain off your balance sheet.

The good news for small businesses is that financial packages for IT purchasing are not just aimed at mega corporations. In tandem with a general move in IT towards numerous small projects rather than a big-bang approach to implementations, the financiers and vendors are now much more amenable to doing deals of smaller value and financing the purchases of more intangible assets such as software.

According to Noel Sheehy of Bank of Ireland Finance, the starting point for their leasing deals is about €10,000 and it has financed everything from the construction of clean rooms to the fit out of call centres.

“If the basics of the business are good we are happy to enter into a partnership agreement that will benefit both parties,” says Sheehy. “If we believe in the idea and the people behind it we are happy to finance it. If the people involved have a good reputation we will support them even if we don’t really know the technology area. We would of course cross-reference the proposal to ensure that what they are looking for is normal for the industry, the information is accurate and so on.”

However, Sheehy cautions that the bank is precluded from providing finance for software purchases. This is because the purchaser doesn’t actually own the asset but instead has acquired a licence to use it. In cases where there is a significant software element to a project, the software vendor itself may be the best source of financing options.

With free support for older products being withdrawn many Microsoft users in Ireland are currently going through upgrades and according to Edel Creely, general manager of Datapac, Microsoft’s alternative procurement models are proving very attractive. These include the ability to enter into a lease-type arrangement where customers make payments over an agreed period of time in order to acquire the licence and rental arrangements where a company may chose to simply pay for the right to use the software.

Datapac has relationships with a number of finance provides so that it can offer a value-add service but, according to Creely, many customers opt to go with someone they have existing leasing arrangements with.

The financial services divisions of the major IT vendors have also become more proactive in recent times. For example, Hewlett-Packard (HP) Financial Services, whose average deal size is €50,000, doesn’t just provide financing for HP kit either — its biggest deal this year involved financing for Dell equipment.

“Leasing gives you the ability to pay as you grow through affordable monthly payments,” says Sylvia Roche, manager of HP Financial Services. “It frees up IT capital funds that can go into other investments and protects against obsolescence and end-of-life technology costs and concerns.”

Unlike the traditional leasing companies HP will not just provide finance for hardware, but also software and soft costs associated with implementing the project. They can also offer a technology refresh option during the life of the lease but, according to Roche, most customers simply take a three-year lease and upgrade at the end of this period. Just a few years ago the typical technology lease term was two years due to the pace of technology change, Roche notes.

As you’d expect given their ties with the big technology players, organisations such as HP Financial Services also offer value-add services that the mainstream players don’t. These include lifecycle management services (for the transition from existing equipment to the latest technology), consultancy and asset disposal services. The later will become increasingly important as the EU Waste Electrical and Electronic Equipment Directive come into force later this year. IT vendors will generally offer some sort of trade-in deal on old equipment that will either be resold in an emerging marker or disposed of in an environmentally sensitive manner. According to Creely, Datapac can also offset the trade in value of printing hardware to reduce the monthly cost of a printing managed service.

By John Collins