Cons of leasing equipment
Loss of Control: There might be significant restrictions on what you can and can’t do to leased equipment.
Vendor tie in: With some leases, you may be tied into using equipment from one vendor. Other vendors are more accommodating if you want to purchase a device manufactured by one of their rivals. Be sure to discuss this during lease negotiations.
Extra expense: When you lease, you’re paying a premium because the vendor is taking on certain risks and obligations that they wouldn’t have if they just sold you the computer outright. This article from Techlearning will give you some idea of the extra costs you incur when you lease.
End of Lease terms: Handling the return of the leased equipment in a way that you avoid unexpected fees and penalties can sometimes be difficult.
Considerations: What to Examine in the Lease Agreement
Do your homework and read the terms of the lease carefully before signing. Below are some questions you’ll want to consider:
1. What happens at the end of the lease?
In the past, some leasing companies required that you returned to them the exact same machine that they sent you originally, and they checked the serial number to make certain. However, more and more, companies are willing to be flexible and accept a computer that’s comparable in most respects to the one they loaned you.
2. Do you have a good asset tracking and management system?
Even though companies are becoming more patient and understanding about end-of-lease arrangements, you still have to return something to them in fairly good condition. If you constantly have trouble tracking and locating your equipment, you should buy rather than lease.
3. Are there other end-of-lease terms?
Can you buy the equipment, and at what price? How strict will they be about the condition of the computers? Don’t be afraid to push back if the leasing company gives you trouble, because you may be negotiating a new lease at the same time you’re returning the old equipment.
"Two YMCAs I work with each bought technology with a lease. In one instance involving a leased a server, we had great difficulty closing the agreement and getting the equipment packed and ready to return in order to avoid lease-end buyout fees. The entailing phone tag and multiple emails caused us as much grief as being pushed to replace a server on the timetable dictated by the lease's expiration date.
Another lease problem I encountered concerned a photocopier; the person who set up the contract was no longer with the organization, and when the lease expired, no one knew to ask for a buyout option. As a result, the organization kept paying fees for an extra 18 months when the lease converted to a month-to-month agreement." Read more in an article on TechSoup.
Information Technical Director, Scott Family YMCA
4. Who is responsible for maintenance and repair?
Also, while vendors will probably replace defective parts during the period of the lease, they usually don’t repair damage done by patrons, whether accidental or intentional.
5. Does the lease lock you into any financial issues downstream?
If possible, show the lease to your accountant, your director, your CFO, or whoever it is that balances your books. The structure of the lease could have unforeseen consequences on your budgets and your cash flow, so you want to get their approval if possible.
"I have been talking to other libraries that lease computers, and that's an option that I could be interested in looking at, but not in the current economy, because I could imagine leasing all of our machines and then not being able to renew the lease because we didn't have the funding. At least if we buy the machines we own them."
Kingston Public Library, MA
6. Does the leasing company require an up-front down payment, security deposit, proof of insurance, or some other hedge against losses on their part?
Most likely, as a government agency, you won’t have to bother with this stipulation, but check the leasing agreement to make sure.
Inc, and techlearning.com have some basic, fairly easy-to-read articles on leasing. RFG group and CIO.com feature more advanced articles directed at IT managers in large organizations.
--> Look for more information on leasing and other topics in the next Cookbook, due out this summer.