Posts Tagged ‘Lessor’

What is an IT Hardware Rental/Operating Lease?

* The basis of any operating lease is a rental agreement where the renter pays periodic rentals for the use of assets.
* Rentals are based on the reducing value of the asset throughout the term of the agreement.
* Ownership resides with the lessor throughout the term of the rental.
* An Operating lease must meet the criteria specified by prevalent accounting standards of the country.

The CRUX of the matter

There are plenty of good reasons why renting IT makes great business sense for virtually any business. Below are 5 reasons one might have not to rent. On closer inspection one will find that these reasons are asked because of a lack of knowledge with regards to rental. The answers are to enable the reader to make an informed decision and receiving a better understanding of the most significant advantages of renting IT hardware equipment.

“We have the cash. And cash is free. So why rent?”

The prospect of avoiding interest and financing charges by paying cash is seemingly attractive to some companies. But cash is not free. It is a limited asset, and there may be better ways to use it than tying it up in a depreciating asset like IT. Generally in two years time the IT resources will be outdated and the rate at which technology depreciates is astounding.

Keeping cash in hand makes it much easier to seize a business opportunity before a competitor can arrange financing, or to weather a downturn that cripples your competition. By spending cash on IT hardware infrastructure, a business can also loose the tax advantages provided by renting. Ultimately, using cash to invest in your business provides returns that are far higher than the interest rate of a rental.

“We keep our assets for at least four years, so is not owning cheaper than renting?”

A business may do a net present-value comparison between rental and purchase, and conclude that owning is cheaper. But as we showed above, the cost of cash is usually higher than the debt rate. Cash is a scarce commodity. A reasonable position is to use the Weighted Average Cost of Capital as the discount factor. Even if a business believes today that the equipment will be kept for a longer period, there are many variables to consider. A 36-month fair market value rental preserves substantial future flexibility at little or no additional cost.

“Why do not we just finance it with short-term credit?”

Short-term credit is an important resource to financial managers. Even if rates are comparatively low, in a challenging economic environment when short-term credit is often hard to come by, it makes more sense to use an external, more cost-effective source of financing for IT investments,preserving short-term credit for other core investments. Consider the following:

*Unlike short-term credit, a fixed-rate rental ensures a regular, low monthly payment that is easy to budget for.
*It reduces the total cost of ownership, since the lease payment reflects the residual value.
*It also eliminates end-of-rental disposal issues.
*A a hardware rental helps your customers meet changing capacity requirements by letting them add or upgrade systems at any time during the rental term.

This is what rental can do for your business, while short-term credit offers none of these advantages.

“Why not just get a term loan?”

If a company is considering a term loan, they should carefully consider all of the terms and conditions that might come with it. There are usually fees involved, and the company may be asked to make a down payment, or to keep compensating balances. These are all additional expenses that a lease will not incur for you.

“Why not just cascade it down to other users or sell it ourselves?”

When planning a new IT acquisition, it is natural that the last thing on an IT Manager’s mind is how to dispose of the old equipment. Unfortunately it is a very real hidden cost that needs to be considered when it comes to choosing between purchasing and renting:

*Will the company end up putting retired systems into storage indefinitely?
*Try to sell same for way below market value just to get rid of the problem?
*Perhaps navigate the complex issues of environmental regulations governing technology disposal?

In conclusion, an operational lease agreement should be seen as a partnership between the rentor and renter to maintain and run an IT infrastructure at the most cost effective way possible and not only a means for a company to finance its IT assets. Continued upgrading and updating of equipment is essential to ensure a healthy working environment. The challenge has always been to manage this in a controlled environment. IT is always one of the biggest expenses on a company’s budget and usually attracts unforeseen costs mainly due to new technology. Making use of an IT Hardware rental agreement is a wholistic approach to this ever increasing challenge.

Want to know how to get started in renting your IT Hardware Infrastructure? Visit http://www.howdenkonsult.com

Author: Eddie Howden
Article Source: EzineArticles.com
Excise Tax

The leasing industry is yet to significantly harness the powers of the Internet. Despite the hype, the web enabling of the leasing process has been sporadic at best. While the industry has already taken to the Internet’s obvious convenience for credit scoring and front-end application processing, a larger and perhaps a more significant impact on productivity has yet to be realized. The advent of the lease life-cycle management model can realize this untapped potential for productivity and, if implemented well, can even directly enhance profitability. Online lease management and accounting software certainly has the makings of a paradigm shift in the lessor’s approach to the lease accounting software. More specifically, it holds enough promise to replace the client/server model just as the client/server model itself dethroned the main frame.

The Benefits of an Internet Model based Lease Management system

To implement, the Internet model is much simpler than its client/server based counterpart, demanding nothing more than a secure Internet server on which the lease accounting software and database reside. Each of the limitless number of computers accessing the server can run any operating system, be it Apple Macintosh or Windows 2000, with nothing more than access to the Internet. By inference, the type of Network and the leasing software’s compatibility to it no longer matters. Even the physical implementation of the network itself, in laying down the wiring and connections, becomes redundant when any authorized computer belonging to any authorized user, is part of the virtual network. In this respect, especially for lessors with multiple operations in different locations, the model used in the lease management software is a boon that takes no more significant effort to tie two computers into its virtual network as it does 2,000. Even training employees to use the lease accounting software becomes easy when there is one standard program worldwide. This immediate scalability and operating-system/network-independence of the leasing software model makes it possible for lessors of all sizes to experience IT benefits unknown in the client/server world.

It would seem that today’s nascent Internet technology compromises the functional power of the client/server model in their leasing software; complex algorithms required to amortize income or calculate yields appear hard or even impossible to replicate on a browser. Fortunately, however, with the growing sophistication of Internet developmental platforms such as Microsoft’s Active Server Pages, Internet applications run a tight race with client/server technologies. The Internet based lease accounting software enables yields and depreciation schedules to be calculated with the same click of a button. The lease management software facilitates reports to be sorted, filtered and queried to obtai any conceivable information available in the database. Income, IDC and residual can be accrued, blended and separated, just like they are in client/server systems.

Not surprisingly, even technology as complex as an Enterprise Resource Planning system, simultaneously used for solutions from global car-manufacturing to domestic chemical-production, runs on Internet-based applications today similar to the internet based lease accounting software. Leading ERP vendors including SAP, Oracle Financials and PeopleSoft, for instance, have tried and tested success stories of highly versatile and complex system that are browser based. “Lease Management Software”, says Jay Mehra, COO of Odessa Technologies, Inc., “though sophisticated in its own right, can quite easily be implemented on the Internet.” Despite the complexity, therefore, the functional powers of traditional models are easily captured in Internet-based applications.

Functionality of the Internet model and the Lease Management Software
While functionally the Internet application is interchangeable, its differentiating quality lies in its approach to data. By the very nature of their technology, client/server systems typically just crunch numbers. A good Internet based application, on the other hand, maximizes the value of that data, in addition to maintaining it. This translates into a direct value-add for the lessor’s operational efficiency. Sales staff can, for instance, be allowed to access the leasing software from anywhere they can connect to the Internet. During negotiations, they can obtain historic information about the lessee to make informed decisions for new business opportunities through the lease management software. The traditional one-way pipelines of data delivery thus become forums for information exchange.

Equally important, as shown by the diagram above, the new channels of Internet-driven communication can now enhance the lessor’s external relationships. Odessa Technologies, developer of a wholly web-based Lease management and accounting software, uses a series of independent web sites that ties the lessor with its various business partners. Through their lessee web site, lessees can get online help, access important account information, download invoices and even make secure Net payments enabled by the lease management software. Moreover, by leveraging the critical data residing within the Internet application, the lessor can even customize business promotions based on the individual lessee logging onto the system. Far from being just a tool that manages a part of the leasing business, lease management software thus becomes a way of conducting and even marketing the business. Through the Internet model the leasing software is able to bring about new sources of productivity, both direct and implied, are thus created from business relationships that are fuelled by information flow.

LeaseWave© – A new Wave in Lease Accounting Software

While the advantages of Internet-based applications are obvious, there is a conspicuous absence of such technology in the leasing industry. It is this gap between the ideal technology and what is typically available that Odessa Technologies, Inc. is fulfilling. With the release of LeaseWave©, a technology built entirely on Microsoft’s Internet platforms, Odessa brings the lease management process online. Through LeaseWave© and technological collaborations with companies such as CapitalStream and Ivory Consulting, the company offers a comprehensive solution that is entirely Internet based by way of the lease accounting software. LeaseWave©, at its core, provides for complete asset management and lease accounting functionality, allowing the lessor to efficiently manage any number of lease portfolios in the leasing software. Beyond this core, LeaseWave© provides a series of interactive web sites that connects the lessor with business partners including lessees, funding sources, auctioneers and banks via the lease management software. Each line of communication in the lease software employs secured socket layers for complete security and is even e-commerce enabled, allowing for secure online ACH and credit card payments.

It is common knowledge that front-end systems, such as CapitalStream’s CapitalStream – FinanceCenterTM are already leveraging the powers of the Internet. The efficiencies that they have realized, however, represent only the beginnings of a greater change. Still to be tapped are the efficiencies of large data-rich back-end processes. The web-enabling of lease management and accounting software is a step towards this efficiency-realization. As Internet technology seeps into the back-end, the leasing industry stands to experience a rare paradigm shift: one where the technology drives the process rather than being driven by it.

Bios
Madhu Natarajan, CEO Odessa Technologies, Inc.
Madhu Natarajan became the CEO of Odessa Technologies. He has consulted for various companies including Caterpillar, Inc and Crowe Chizek, LLP; Madhu brings with him an extensive research based leasing background with 5 years of leasing software experience. He holds a Bachelor’s degree in Computer Science and Business Administration from Monmouth College, Monmouth, IL; Madhu graduated Magna Cum Laude. fax copy to 610-293-9903

Author: Madhu Natarajan
Article Source: EzineArticles.com
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Many businesses, both small and large do not realize that software can be leased or financed. Although software financing is unique in some manner, in general it has many similarities to equipment leasing.

It is also proper to ensure that right finance firm is utilized, as many lenders are somewhat risk averse to financing this asset. However, many others are looking for business in this area!

Contrary to popular opinion software as an asset in many cases has more value that a depreciating hard asset. It has also been confusing for lenders when it comes to the registration of collateral under Canadian PPSA (PERSONAL PROPERTY SECURITY ACT) legislation.

In its broadest term the financing or leasing of software that can’t be transferred to another user. The business owner does also of course not own any development rights in the software. Software financing is treated as a financing mechanism, it is not a true lease per se.

Some additional key points around the technicality of software leasing/finance are as follows:

The right of a customer to use the software gives the company no right in the intellectual property surrounding the developers rights in the software code. The best example of this is when we look at our EXCEL spreadsheets that we use in finance and home matters. We use the software, but Microsoft of course owns it.

The problem in the past around the financing of software revolved around the fact that lenders did not know how to collateralize and register their security. Under current PPSA legislation intangibles and software can be collateralized. Therefore the software financing lender/lessor can be very confident that the software can be collateralized.

At the heart of the software financing issue is the true value of the software to the business owner. He runs his business on it, i.e CRM programs, office software, manufacturing software, etc. Software lease payments tend to be made since the asset is indispensable to the value and on going concern of the business. Unless companies are liquidated in total bankruptcy most lessors and finance firms recover fully on their software leasing – Source – Journal of Equipment Leasing In many business bankruptcies the software lessor or lender is treated as a secured creditor.

Also key to the software financing issue is that many software firms offer maintenance, support, and updates around their product. This enhances the lenders asset as it is used for longer lengths of time, and often constantly upgraded. Quite frankly it becomes less obsolete than computer hardware!

Many software lessors and lenders also finance the service and maintenance contracts associated with their customers software acqusition.

We do acknowledge in this article that it is more difficult to finance customized software although it is possible based on the overall credit strength of the borrower. Many customized software deals are done with only investment grade borrowers where credit risk is minimal. Many smaller ticket lessors and lenders however do now lease software. In general these transactions are full payout capital leases.

In summary, software lease financing is available and should be considered by every business owner in the same context as a capital equipment finance transaction. The computer hardware industry has grown with leasing, and the software industry is doing that also. The same considerations an owner gives to lease vs buy apply to a software finance acquisition.

Stan Prokop is founder of 7 Park Avenue Financial – http://www.7parkavenuefinancial.com The company originates business financing for Canadian companies,specializing in working capital, cash flow, and asset based financing. In business 6 years the company has completed in excess of 45 Million $ of financing for companies of all size. For info on Canadian business financing and contact details see: http://www.7parkavenuefinancial.com/toronto_ontario_equipment_financing.html

Author: Stan Prokop
Article Source: EzineArticles.com
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