Leasing can provide fiscal flexibility

SUPERIOR – In the quickly changing information technology environment, NetApp Financial Solutions has found leasing to be a beneficial practice for both its parent company and its clients.

Boulder-based NetApp Financial Solutions provides financing for customers looking to acquire the storage products of Sunnyvale, Calif.-based Network Appliance Inc.

According to Wade Schoech, senior finance director of Network Appliance Inc., companies looking to invest in IT products typically look to lease or finance the purchase over time. He attributes this to several reasons. For one, leases give clients the flexibility to do midterm upgrades, which is especially useful with technology that changes quickly. Also, because payments can be spread over time, companies can purchase more than they would be able to with cash. Finally, because companies aren’t purchasing in one lump sum, they are better able to budget.

This translates into advantages for the seller as well.

“When you are selling a $500,000 to $1 million product, it is much easier to sell a monthly payment rather than a lump sum,” Schoech said.

It also gives Network Appliance Inc. a competitive edge because the company can provide one-stop shopping. Rather than having customers go to a bank or a third-party leasing company, Schoech said his company can service all of their needs, from the equipment to the service to the financing. Plus, it helps close deals more quickly because of the ease of procurement, he said.

While technology products are commonly leased, Karen Larson with Key Equipment Finance in Superior said just about anything can be leased these days. As president and chief operating officer of the global vendor services unit, Larson has seen equipment leasing and financing expand to a variety of products, including trucks, printers, medical equipment and even software.

According to the Equipment Leasing Association, 80 percent of all U.S. companies lease all or some of their equipment.

“Most companies are budget oriented, so if vendors can offer flexible leasing terms, they can sell more equipment while still operating within their clients’ budgets,” Larson said.

In technology industries, it allows clients to buy for the future.

“It allows our customers to get a larger system because they are spreading payments over time, rather than making a huge capital investment up front,´ said Schoech.

For others, it allows vendors to sell to clients with limited budgets. As an example, Boulder-based BI Inc., a manufacturer of offender monitoring technology, uses Key Equipment Finance to provide equipment leasing to its federal, state and local government clients. The financing programs enable BI to sell into a market that has funding requirements based on the annual appropriation of funds.

Larson said leasing also helps manufacturers in terms of an ongoing client relationship. “Leasing allows vendors to maintain control of customers and know who they are,” she said. “If a customer pays cash, there is no continuing relationship. With leasing, a manufacturer can give their customers an opportunity to upgrade or get something new.”

The manufacturer also has the added benefit of improved cash flow. According to Larson, when manufacturers work with a leasing company to help sell their equipment, they can get paid more quickly than if they sold it. Rather than waiting for payment for 60 days or longer under 30-day sales terms, a manufacturer can be paid in less than a week through a leasing organization like Key Equipment Finance.

When setting up a leasing program, a manufacturer needs to consider whether they have the resources to operate a leasing program in house, or whether it would be better to outsource. According to Larson, a company needs hundreds of millions of dollars in leasing assets to support the infrastructure to operate a leasing program in house. “Unless the company is big enough, it is generally better to outsource,” she said.

If a company chooses to outsource their financing services, Larson recommends choosing a company with a similar culture, market experience and sufficient geographical reach.

Each manufacturer’s leasing needs can vary based on how much they want to handle in house. Key Equipment Finance is flexible based on each vendor’s particular go-to-market strategy.

“We can have true wholesale, where a company is just using our balance sheet to 100 percent retail where we do everything,” Larson said. Key Equipment Finance works with transactions ranging from approximately $10,000 to $20 million.

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