There are two primary types of leases: operating and finance.
The one that's best for you clearly depends on your goal.
Operating leases typically last no more than five years. As a
rule, they're shorter than the life of the equipment, because
the lessee doesn't buy the equipment at the end of the lease
but instead trades it in for a new piece-making this a popular
choice for high-tech equipment leasing. Finance leases usually
result in the lessee buying the equipment when the lease is up.
These leases are typically spread over a longer period of time,
which reduces the monthly payments. Although operating leases
usually work better for businesses renting high-tech equipment,
don't disregard finance leasing altogether.
Dennen, who chose a 36-month finance lease in January 2000,
plans to buy the phone system at the end of the three years. And he
isn't worried about the equipment becoming obsolete. Although
phone systems advance with time, he doesn't think his business
would actually benefit from more sophisticated models.
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David Arentsen, who analyzes the IT equipment leasing industry
for ShareMax, a Parsippany, New Jersey, procurement company that
provides a technology platform for sourcing, says finance leases
have certain advantages. "With an operating lease, you have
lease payments every month [indefinitely], which can be downright
annoying," Arentsen says, "so consider finance leasing if
there's [even] a portion of your business that doesn't need
cutting-edge technology." For example, your Web designer may
need a PC with the latest processor, but an employee who simply
needs access to databases or word processing applications could get
by with an older computer.
Then there are the three types of lessors: captive, independent
and leasing brokers. Captive lessors are subsidiaries of
manufacturing companies. They own the equipment and rent it out to
you. (Dell Computer, for example, is a captive lessor.) Independent
lessors buy equipment from different vendors and then lease it to
you. You can go straight to these vendors or deal with a lease
broker, who acts as a middleman, arranging leases between customers
and leasing providers that can fill their needs.
Dennen took his search for a lessor online, where he found
OneCore, which provides financial services for entrepreneurs and
acts as a leasing broker. The ease of being able to handle
everything online appealed to Dennen. He approached OneCore with
the vendor he wanted to lease from (Moscow Communications), and
OneCore took care of the rest. "We were actually a guinea pig
for OneCore, as one of its first clients," Dennen says.
"All we had to do was tell them the phone system we wanted,
and they handled all the details that went into establishing the
leasing relationship. It was a quick and easy process."
Arentsen says that no matter what type of lease you choose, you
should make sure service comes first. Before you sign your leasing
agreement, find out whether the lessor offers 24-hour maintenance
with a quick response time (as in hours, not days). He also
stresses the importance of choosing an established company with a
solid reputation to reduce the chances the lessor will go out of
business before your lease runs out. Be sure to check out the
Equipment Leasing Association of America (www.elaonline.com) member list. The
800 members follow the association's Code of Fair Business
Practices, which requires members to abide by certain stand-ards
that keep lessees' best interests in mind.
Originally published in the January 2001 issue of Entrepreneur Magazine
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