If your customers are cash-strapped but looking to upgrade their systems, leasing may provide an attractive solution. Jeff Teucke, technology group platform leader at EverBank Commercial Finance, discusses how the option to lease IT equipment can get customers the technology they need, and the sale you want. —Jennifer Bosavage, editor
Your customers might be thinking it’s not the wisest time to invest in enterprise technology upgrades. With the sluggish U.S. economic recovery, ongoing debt anxiety in Europe and worries over slowing growth in China, CFOs and CIOs remain extremely cautious when making technology investment decisions. However, the strong financial incentives from lease financing solutions make now the right time for your customers to starting investing in equipment and software upgrades again.
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A few bright spots in the current tech market are beginning to emerge as a result of developments in the consumer sector, such as advancements in tablets for enterprise use, cloud storage and major upgrades to smartphones. Adding to this optimism are recent remarks from Federal Reserve Chairman Ben Bernanke, who assured members of a House panel in July that while U.S. unemployment remains “frustratingly slow,” he does not expect the country to enter into a double-dip recession.
While the unsteady economic conditions of recent years led to a major decline in the rate of commercial investments in essential assets, such as technology, the environment now is ripe for new activity. Leasing IT equipment is becoming more attractive. Overall loans and leases at commercial banks have shown positive year-over-year growth for the past four quarters. Credit availability has started to return to pre-recession levels, but the demand for credit has not followed the same trend, leading to interest rate compression.
For example, Bank of America reported that its net-interest margin fell to 2.21 percent in the second quarter, its lowest level in years. That's good news for buyers and sellers of technology equipment, who now have an opportunity to capitalize on these low rates.
However, traditional bank loans are not as easy to come by since the financial crisis. “The days of yesteryear when you could go to your corner bank are over,” Kenneth Walsleben, a professor in the entrepreneurship and emerging enterprises department at the Whitman School of Management at Syracuse University, was quoted as saying in the New York Times. “Small, emerging, growing businesses have few traditional sources to turn to. You have to get a little creative.” Demand for alternative funding has thus grown, which has resulted in price decreases for traditionally expensive lending options.
So, how can your customers get back into the game?Providing customers with options for leasing IT equipment is a great alternative in today’s environment, and your customers won’t need to go somewhere else for financing. Leasing IT equipment can mean the difference between your customers passing on a major technology upgrade, or acquiring the equipment or software necessary to take their business to the next level of success.
Leasing IT equipment can often ease the “sticker shock” that can go through a CIO or CFO’s mind as they consider major equipment purchases. Because many are looking for innovative ways to protect their balance sheets from a major financial outlay, or wish to upgrade their equipment regularly but lack the authority (or peace of mind) to execute such frequent transactions, lease financing solutions offer three attractive benefits:
• 100 percent financing: Generally, leasing does not require buyers to make large down payments or deposits, greatly reducing the out-of-pocket costs required to make an acquisition. In this way, leasing helps to protect a business’ balance sheet and level of cash-on-hand.
• Preservation of other credit vehicles: Equipment leasing allows businesses to make an acquisition without having to draw down traditional lines of credit, allowing them to retain access to vital credit resources while still making necessary investments.
• Convenience: Customers well get their financing and equipment in one simple package. Although leasing is a common option available to buyers, a large number do not take full advantage of it. Many equipment vendors currently provide their own leasing options or recommend preferred partners for expedient lease finance solutions at the point of sale.
For resellers and manufacturers of technology, leasing works best when terms are written by a financially-strong partner who is dedicated to serving their customers’ needs. Sellers stand to benefit most when they are aligned with an experienced technology lessor that can help package their product as affordable, incentivizing buyers to take advantage of low rates. In the current market environment, this will have enormous appeal to budget-conscious CIOs and CFOs alike.