Leasing Hardware Becomes More Common

''Companies aren't ready to tie up cash in equipment whose life may turn out to be only two or three years.''
Karen BannanJuly 7, 2004

A recent report from Forrester Research shows that, after a long dry spell, businesses are finally beginning to invest in IT equipment. With the economy on the uptick, and with many companies eager to replace aging hardware, the increased investment in technology is hardly surprising.

What is somewhat surprising: many companies are choosing to lease this new hardware. One study predicts IT leasing will grow at a 6.5 percent annual clip from 2002 to 2005 — a sizable jump from the 1.5 percent yearly increases recorded in recent years. Andrew Bartels, a research analyst at Forrester, says leasing technology equipment has become common practice with CFOs. “Companies aren’t ready to tie up cash in equipment whose life may turn out to be only two or three years,” he says. “That’s where leasing comes in.”

Leasing specialists report a big rise in the number of new leases being written, as well. Dan Flagstad, co-CEO of Relational Funding Corp., in Rolling Meadows, Illinois, notes that new technology leases at Relational are up 20 to 30 percent this year.

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Of course, finance executives have weighed the merits of equipment leasing for decades. In the past, companies tended to buy their tech equipment, arguing that (a) IT provided a competitive advantage and (b) computers were cheap. While those arguments still hold, the business landscape has changed. Low interest rates have reduced the carrying costs of leased equipment. At the same time, the useful life of a business machine has grown shorter; PCs now tend to need replacing every two to three years.

Leasing solves that problem. What’s more, renting machines enables companies to replace old equipment without incurring disposal costs or running afoul of the Environmental Protection Agency. (For more, see “It’s a Rental.”)