By Jon Leslie, MD, Reality Finance Direct
British businesses spend £1.1 billion a year on IT Leasing and Financing, says The Finance and Leasing Association (FLA) and 95% of the top FTSE 100 companies use leasing to pay for equipment and software, according to GE Capital.
Yet, overall we spent £12 billion on IT and communications equipment in 2011, which indicates that less than 10% of total spend on IT is currently being funded through leasing. This is madness as there are very compelling strategic and financial reasons to go down the leasing route.
I should know. I’ve been in finance all my life and for many years I was a banker, so I can see the advantage of going to a leasing company, especially now that High Street Banks are failing SMEs. Last year they fell short of their Merlin Agreement lending targets by £1billion.
My company, Reality Finance, has 6,000 clients like Honda, Axminster Carpets, Cancer Research and many SMEs, who understand the logic. We’ve been specialists in asset finance for 12 years now and have a lease book with £100 million under management.
So, why then don’t more SMEs use leasing to buy their IT equipment and software?
The answer, I suspect, is that IT Leasing is a bit of a mystery, and they would certainly consider it, if they knew more. So let’s try and de-mystify it and here are Six of the Best Reasons to Consider IT Leasing to fund your computer, software, upgrades, installation and training:
1. A key advantage of leasing and not buying IT hard and software is cash management and keeping funds available. This can be used as working capital instead of disappearing in an up front payment all in one go, and it immediately gives you greater flexibility in the use of your funds.
2. Leasing makes sense in terms of the amount you lose in depreciation when you pay up front. For example, kit you buy for £100,000 today is worth only £70,000 tomorrow. And with the lightning pace of progress in technology, your equipment is out of date anyhow within just 2 years.
3. Leasing enables you to upgrade your equipment without having to buy the latest kit, and credit is available on reasonable terms, while banks’ rates can be punitive, if they’ll lend at all.
4. Leasing ‘bundles’ (package deals) also cover installation, training and software upgrades, which can save you substantial amounts.
5. Then there are significant tax breaks. For example, if you pay £100 a month over 36 months for equipment, the gross cost is £3,600. However, there’s corporation tax relief of 22% every month, yielding a saving of £800, so the net payment is £2,800.
6. Leasing companies have their own Ombudsman and Ethical Code, overseen by the FLA to ensure fairness and integrity.
“We’d be very happy to talk to anyone interested in the possibility of leasing IT equipment and software,” says Jon Leslie, MD of Reality Finance Direct. “This year businesses in the UK are expected to spend almost 10% more on new equipment, according to Leasing Life Magazine.
“So it’s worth considering a new and highly cost-effective way of funding all your IT needs - installation, training and upgrades.
“Perhaps it’s time to start viewing IT as a utility to be paid for in a way, which benefits you without tying up your finances — in a way that frees up capital to develop and grow your business.”
Jon Leslie is at www.realityfinancedirect.com