Buy what appreciates, rent what depreciates. Sure, the old business adage may be a little simplistic, but it still makes sense for most enterprises. So it’s no surprise that leasing is growing in popularity, especially when it comes to computers. According to David Powell, president and CEO of the Canadian Finance & Leasing Association, leasing is hotter than ever. But, warns Powell, be sure to ask the following questions before you sign on the dotted line.
- How am I planning to use this equipment and for how long will I need it?
Different types of equipment — monitors, CPUs, printers — have different lifespans. Where one piece of equipment may be economical to lease for 10 years, another may not. Determining how and where you plan on using the equipment is crucial before entering into a lease.
- Does the lessor understand my business and the role of this transaction in it?
Leasing companies that are directly associated with hardware manufacturers, such as Dell Financial, are often better equipped to deal with specific requirements than are general leasing companies. So shop around for a leasing company that will tailor a contract to your needs.
- What is the total lease payment, and are there any other costs I could incur before the lease ends?
Your lease payments will not always include taxes. Other potential hidden costs can include interim rent (a per diem rental on added-on equipment delivered between regular lease payments) and charges for shipping, damaged equipment and early returns.
- What happens if I want to change the lease or end it before the term expires?
Even if you return the equipment early — as you might do after a company downsizing — you are typically responsible for the balance of payments owing on your lease. If you upgrade or lease more equipment, the remaining lease amount is usually absorbed into your new lease agreement automatically.
- What are my tax and insurance obligations?
According to Allan McNeely, a consultant with Cap Gemini Ernst & Young, you are charged property tax on all PCs that reside in specific areas. “This is typically paid by the lessor on behalf on the client. If the client has the mechanism in place to feed location information to the lessor, the tax will be levied based on the location of the asset at the time of assessment,” explains McNeely. “Otherwise, you will pay the tax based on the ‘ship to’ location.” Leasing companies always offer insurance, but generally your existing policy will already cover leased equipment. Buying shipping insurance is strongly recommended though, especially if the company does not deliver the equipment directly to you. Taxes and tariffs associated with shipping are also your responsibility, as well as any general maintenance costs not covered under your warranty.
- What happens if the equipment is damaged or destroyed?
Most leasing companies offer variable warranties that cover manufacturer’s defects or general malfunction. Typically, the lessor will fix a damaged unit and invoice you for the repairs. But be careful: under some contracts you have to contact the original manufacturer, not the leasing company, to repair faulty equipment. And if you damage equipment that is not under warranty, warns McNeely, “You will typically have to pay the remaining lease on the unit, then buy out its residual value.”
- Can I upgrade the equipment or add to it under this lease?
Most leasing companies will let you upgrade during your lease. However, you are still responsible for the balance owing on your original lease. Do not upgrade existing equipment yourself without consulting the lessor — often, any unauthorized repairs, alterations or even improvements to equipment will void your warranty.
- What are my options at the end of the lease?
Most contracts will give you the option of buying out your hardware at the end of the lease or simply returning it. David Powell of the CFLA, strongly recommends consulting an accountant before entering into the initial lease agreement, so you are aware ahead of time what you are going to do when the lease is up. “It all comes down to whether or not it is financially advantageous to own the equipment at the end or not,” he says, “and the end value of the equipment is a significant factor when compared to how much you’ve already paid towards it.”
- How do I return the equipment?
Most leasing companies want products back within 30 days of your final lease payment, via the original delivery method. Inquiring about free shipping and pick-up, especially for large orders, is a good idea and may save you money.
- Are there any costs at the end of the lease?
Besides the cost to return the equipment to the lessor, you must also make sure the unit is in working order and is not missing any peripherals. Don’t ignore this, warns McNeely: In some cases those return costs can be as much as $200 per unit. The only additional cost should be a potential purchase option, which should be arranged at the beginning of the lease even if you do not intend to purchase the equipment at that time.
© 2004 Laura Garetson