We often get asked – why would we lease? Especially from large Corporates who argue cheap debt is one their perks. The answer may surprise you.
Operating leases are almost always cheaper than even the best corporate rates. This is because the Lessor also contributes their own cash (the residual) so the actual amount of borrowing is lower, hence the total deal is cheaper overall. At the end of the term the leasing company owns the asset, so by establishing carefully selected business partnerships, we can extract value from that equipment better than pretty much any corporate. These strategic partners utilise markets all over the world drawing value from almost any type of IT equipment and various other asset types (including wine barrels… but more about those in a later blog).
The next question that invariably comes up, is around giving the equipment back after a three or four year lease term – surely all this IT stuff can be used for years?
Short answer, yes it can – but think of it this way, today would you want to be using a device that is now over 4 years old? To put that in perspective, if you purchased your phone 4 years ago you would be on an iPhone 6s. Would you really want to be saddled with that?
However with an asset under a lease agreement you will simply hand that back to the lessor and start on the newest, fanciest version, which will of course be significantly better given the rapid technological developments these days. The new accounting rules that bring all leases onto the balance sheet also have an exemption for low value items, so pretty much all IT end-user equipment would not even hit your balance sheet.
For firms with a strong corporate presence and brand, it’s vital to have the latest kit and to also minimise admin on the whole asset program; leasing is often the only solution they look at especially given the benefits pointed out here.
Hopefully you’ve enjoyed this layman’s perspective on the process and can see why leasing is getting more and more popular as even large Corporates have scarce resources both in time and money.