If cash Flow and capital were no object the acquiring of technology assets wouldn’t be as much of a challenge as one would think. Canadian business owners and financial managers like to be on ‘ the inside ‘ when it comes to knowledge and competitive information – it’s just natural.
So we want you to be on the ‘ inside ‘ when it comes to technology leasing and financing. What companies should you be working with when it comes to financing of telecom, computer and software assets. We want you to know some of the tricks (can we call them that) that the big boys use.
Technology leasing has some different economics when it comes to financing. Some very powerful trends are in play. Your financial commitment to acquiring these types of assets is generally large relative to your overall capital budget; these assets tend to depreciate rapidly, and prices seem to be going down all the time… so when should you purchase? Boy, those are some interesting dynamics!
At the same time the benefits you receive from the use of tech assets are huge, not the least of which is your competitive position in your industry. So let’s talk about overcoming some of those tech challenges
Many business owners are not aware that you can finance ‘ software ‘, either on a stand alone basis, or in conjunction with a hardware solution. But there is a key differentiator here, which is that it is much easier to lease application software as opposed to software you have developed. But larger, credit worthy companies can in fact get financing for software development on a project by project basis.
One of the interesting ways that the lessor protects himself in these situations is to ensure they have access to and rights to the source code you are developing. How is that handled, usually via an escrow agent who maintains updated access to the source code , with the provision that should the lease default the lessor has access and rights to that source code .
Term. It’s all about ‘ term ‘ when it comes to technology leasing of computer and software. Leasing companies in general prefer a 3 year term for tech assets. Does that make sense? We think it does… if only for the fact that the dramatic changes in hardware and applications render anything older than three years as somwhat obsolete when it comes to technological change. So the bottom line is to be prepared to defend your need for a 4 or 5 year lease term when it comes to a depreciating asset such as tech.
It should be no secret to Canadian business that technology leasing is secured by the lessor in the same manner as any other assets , a PPSA ( Personal Property Security ACT) registration is made against those leased assets; registering the lessor collateral in the hardware and software described in your equipment list and configuration .
If there is one ultra important thing you should consider when looking at companies that will assist you in technology leasing of computer, software, and telecom assets it’s probably the type of lease that you enter into. Broadly speaking in Canada
you need to only focus on two types of leases – capital and operating. Is there an easy way to immediately pick which one is the most applicable to your need? It’s not as challenging as you think, think simply in terms of lease to own (that’s capital) and ‘ lease to use ‘ (that’s operating). Those two leases, capital and operating, dominate the Canadian marketplace.
Those big boys we referred to, major corporations tend to use operating leases for some sophisticated reasons such as balance sheet ratios, cash flow coverage covenants, return on equity goals, etc. If you are a small or medium sized business these same operating leases simply could provide you with two things, a lower monthly payment, and some great flexibility at the end of the lease term.
In summary, there are some major differences in dealing with technology leasing as opposed to other types of assets that might be in your budget. Many of the ‘ tricks’ those larger corporations use are available to the small and medium size business owner. Understanding how these assets can be financed is important for any sized business. For extra expert help consider talking to a trusted, credible and experienced Canadian business financing and leasing advisor who can assist you in ensuring maximum benefits and flexibility.