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Take Control of Your IT Acquisition

Take Control of Your IT Acquisition

4/4/2016

Will you have multiple, overlapping projects or complex IT initiatives this year?


Equipment and technology upgrades and replacements are inevitable. Even careful consideration and project planning will quickly switch into overdrive once the organization decides to move forward with an IT project.

Once in overdrive, you must identify potential financing partners, solicit proposals, conduct due diligence, and analyze financing terms for each and every project. This process is both unreasonable and costly. Meanwhile, business-critical equipment is on hold and the opportunity for economies of scale is missed. Particularly onerous are complex projects involving lengthy implementation and multiple vendors. Or worse: multiple, overlapping projects.

In cases like this, many companies choose a lease line of credit. Why? Lease lines are typically in place for 12-18 months at a time, eliminating the need to conduct due diligence on a new vendor for each and every project. Better yet, a lease line of credit can be set up in advance of the project(s), and may offer a lower rate, based on the size of the lease line.

[LEASE technology that will be replaced every 3-5 years; FINANCE equipment with a useful life of 5-10 years.]

[Checklist] Is a Lease Line of Credit Right for You?

 

□ Complex project
□ Multiple vendors and timelines
□ More than one project at a time
□ Growing company
□ Future, yet-undetermined projects
□ Prefer economies of scale
□ Could benefit from an alternative financing source


How to Get Started With a Lease Line of Credit

If you checked any of the boxes on the list, a lease line of credit probably makes sense for your company. Private lenders, banks, and even the vendors themselves can provide it for you. Beware; however, that banks often charge set-up costs and non-utilization fees for this service. Separately, vendor finance solutions will frequently not include products from other sources in the financing package, and are therefore a short-term solution. With any of these providers, a deposit is typically required. For these reasons, a lease line of credit from a vendor-neutral leasing company is recommended.

If you already have a line of credit, ensure that within it you have access to both fair market value and dollar buyout options to guarantee a strategic approach to equipment acquisition. Specifically: technology that will be replaced every 3-5 years should be leased, and equipment with a useful life of 5-10 years should be purchased via the dollar buyout option.


Talk To Your Lender About:

+ A fixed rate
+ Loan-to-value
+ The length of the term

Another side benefit to the lease line of credit is the opportunity for a better, more strategic relationship with your lender. In this scenario, your lender acts as a project manager, helping you manage your multiple leases, suppliers, and fundings. Like a home equity line of credit for personal home improvements, a lease line of credit can take a lot of the headache out of business technology and equipment improvements.

A lease line gives you the freedom to use as much or as little as you need. With First American's lease line product, you will never pay any under- or non-utilization fees. Your lease line will be there to cover any equipment, software, service, or build-out projects that you're planning throughout the year, and with the economies of scale you gain, you will benefit from the lowest price available.
 
Comments
Thanks! It's really useful article! I'll implement these tips to my company strategy.
7/13/2017 3:27:18 AM

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