From the September 1999 issue of Startups

Do you need a new computer? Do you have a few thousand dollars lying around? No? If you've looked under the cushions of the office couch and can't quite scrape it together, then consider leasing as an option. If the idea of leasing conjures up images of car salesmen in plaid suits, then you need to get out more.

Computer manufacturers and retailers really, really want your small business's business. Really. You don't have to take our word for it. Jani Byrne, program director of IBM's small-business marketing and personal systems group, says, "Many companies have realized that we need to focus a great deal of time and attention on the small-business customer. There's a wonderful opportunity there, and their needs are quite different from [those of] large businesses." Which translates into faster, more convenient and more flexible leasing options for you.

A good example of what you'll find when you wander over to your local reseller is IBM's SuccessLease, which is part of the company's new Small Business Program (http://www.ibm.com/smallbusiness). With a 36-month length, SuccessLease (available through resellers online) covers purchases from $1,000 to $50,000, with approval in less than an hour. You can even arrange a seasonal option where your payments are higher at the times of the year when you do the most business. (For example, a pool-cleaning business could arrange for higher payments in the summer.) Another option ideal for start-ups is to have payments increase over time as your business becomes more established and generates higher sales.

Other manufacturers, like Hewlett-Packard (http://www.hp.com) and Dell (http://www.dell.com), also offer in-house lease programs specifically for small businesses. Compaq (http://www.compaq.com) requires a $1,000 minimum for hardware, software and services, with various end-of-lease arrangements. This is augmented by an option to trade in the equipment during your lease period for newer Compaq products to help you keep up with advancing technology.

Computer manufacturers aren't your only lease sources. Computer retailers like Computer Discount Warehouse (http://www.cdw.com) and online giant BUY.COM (http://www.buy.com) both offer lease programs. BUY.COM's eLease, available through its BUYCOMP.COM department, allows for online application and approval. The eLease program is available for any computer product the company offers.

As with any contract, keep an eye on the terms. There are several different end-of-lease options that tend to crop up:

  • Fair Market Value entails buying the equipment at lease-end for its fair market price. This is good if you intend to upgrade leased equipment.
  • A 10 percent purchase option allows purchasing for 10 percent of the original cost. This keeps your payments a bit lower.
  • The $1 buyout involves purchasing the equipment for $1 per piece at the end of the lease. This means no worries about high buyout costs.
  • In addition to these, extending the lease or returning the equipment are usually options.

So much for the nuts and bolts of leasing; now on to the "Why lease?" question. "The main advantage," says Byrne, "is that [leasing] helps small-business [owners] keep their cash invested in their businesses. So many times cash-flow maintenance is a difficult task, especially for businesses that are just starting up." You can put your money where it's needed most instead of into a hardware sinkhole. If keeping up with the latest technology is important, many lease programs let you trade in your leased equipment for the latest hardware and software.

Sounds great. So what's the downside? Just as if you were to lease a new Jaguar (which you do all the time, right?), you don't actually own the hardware until you've paid it off. You'll likely be required by your lease contract to maintain insurance on the equipment, and you'll have to request approval for such mundane activities as moving the computer from one building to another. Interest and payments do add up. Case in point: A recent offer from Apple allowed you to finance a $1,199 iMac for $29.99 per month for 67 months with a 14.89 percent annual percentage rate. Your total cost at the end would be close to $2,000--not including tax, shipping and fees.

Weigh your cash flow against your computer needs before taking the leasing leap. Just remember: Walk softly and carry a big calculator.


Freelance writer Amanda C. Kooser (kooser@entrepreneurmag.com) specializes in technology issues.