A Lessee's Guide

At the end of 2012, ELFA is also reporting that the quality of loan portfolios and credit quality in the industry is strengthening. The index rose for the 30th consecutive month year-over-year, pointing to modest growth in demand for loans and in the wider U.S. economy. Specifically, leaders of ELFA state, “Companies signed up for $7.6 billion in new loans, leases and lines of credit in October, down 7% from September's $8.2 billion, but up 27% from $6 billion a year earlier.”

On the technology side, as reported by Gartner Research, organizations industry-wide are seeing accelerated rates of technology implementation and increases in collaborative needs, dictating new rules and greater dangers of obsolescence; it is no longer a question that leading-edge, high-performing technology is crucial to a company's ability to perform efficiently and effectively.

To this end, leasing offers a strategic avenue for providing top-of-the-line and current technology at a fraction of the purchase price. Whether an organization lacks sufficient cash to facilitate a full purchase or whether it desires to make the most of its IT budget by leasing rather than buying technology equipment, a company can choose a lease arrangement for equipment that would otherwise require a large capital investment in a single year. Leasing also frees staff from the burden of disposing of outdated equipment and ensures access to the most current IT tools.

The Complex

As the flurry of end-of-the-year reports coincides with beginning-of-the-year predictions, the IT 2013 budget benchmark numbers are in from CEB Global. See www.execu tiveboard.com/it-blog/2013-it-bud get/. On average, CIOs expect total IT budgets to increase by 1.8% in 2013. Operational expenditure will rise, and capital expenditure will stay flat, but beneath these seemingly stable numbers, CIOs are pushing forward with efforts to transform IT. They are reallocating resources to capture value from collaboration, insight and mobility; and building a service-based, and increasingly externalized and collaborative delivery model. Some additional details from the CEB report include:

• Information and Collaboration Projects Grow ' In 2013, project portfolios will include proportionately less investment in process automation, and more in information management and collaboration. For the third year running, information management and collaboration represents the largest project category, accounting for 32% of IT project budgets, compared with 30% for process automation. However, some companies plan to go much further. The top 20% of organizations in terms of spending on information management and collaboration expect to devote 66% of their 2013 project budgets to this category.
• End-to-End IT Services Reach Scale ' Since 2010, I have seen growing interest in end-to-end IT services, but many organizations experimented with the model, rather than implement it wholesale. This tentative stance is changing. By the end of 2013, the majority expect to offer at least some end-to-end IT services. And at roughly two-thirds of those organizations, services will account for more than 30% of the IT operating budget.
• New IT Roles Emerge ' Service management requires new roles. Seventy-eight percent of IT organizations already have or plan to create service managers; and 59% are creating service architects. I see a similar pattern occur as organizations invest in information management and collaboration. Eighty-four percent have or plan to have information architects, and 52% will have user experience designers.

Best Practices of Leasing Technology

In this complex nexus of the predicted IT landscape, many decision makers are turning to leasing equipment and technology for their organizations as a competitively advantageous way of performing in the new business model landscape. From a financial perspective, leasing allows companies to conserve their cash reserves, keep bank lines of credit open for short-term use, allows firms to expense lease payments rather than depreciate equipment, avoids potential losses on the sale of equipment, and allows IT to proceed with projects that may exceed the firm's budget. Combined, these can translate into optimal financial and operational flexibility when the lessor involved is a trusted and strategic partner in the organization's decision-making.

If an organization chooses to take advantage of the benefits of leasing technology, the next step will be to determine what kind of leasing and financing provider is the best fit for the company's unique set of needs. It is important to consider the lessor's service capabilities, industry and technology knowledge capital, client references, and reporting and invoicing capabilities. Know who will manage your account and who at the leasing company has decision-making authority. You must have someone you trust to turn to. Someone who will ask you what terms and conditions are most important to you and your firm.

In general, there are three kinds leasing and financing providers: the manufacturer or captive lessor, the independent lessor, and banks. With captive lessors, the majority of leases are for manufacturer-specific products and may impede upon your company's desire for customized and flexible firmwide technology solutions. It is also important to note that any discounting between parent and captive is often hidden. The advantage of banks is that they owe no allegiance to a specific vendor; however, the banks may not have an advanced understanding of the technologies that would allow them to be strategic partners for an organization making these decisions.

Independent lessors, on the other hand, have no allegiance to a specific vendor and are in a unique position to take a consultative approach. This is particularly important if your company needs specialized technical support in the decision-making process. An independent lessor, therefore, can be a strategic partner for your firm's unique set of concerns and may be able to provide more flexible and customizable solutions.

The following highlights some best practices when leasing technology.

Perform Due Diligence

When seeking out potential lessors, send out Requests for Proposals (“RFPs”). Make sure the company or bank you select will be there for you during the entire term of the lease, which could last up to five years.

Clarity

Provide the leasing companies with the following information, and let your potential lessor know from the outset you will require high levels of transparency:

• The term desired for the lease (frequently 36-60 month terms).
• Costs and equipment descriptions for hardware, software and other services. For hardware, provide the specific types and models of the equipment. With software it helps to provide a description of what it will be used for; this way, the leasing company can explain the importance of the software to the firm's operation when sent to a credit analyst. On the services side, be sure to list all services that may be needed for installation, maintenance, training, etc.
• The installation time frames. Will the project be installed over a month, or will you need an installation period with deposits for the vendors?
• Require that the Swap Rates be set for the date of the RFP to ensure that each leasing company is basing its rates off the same benchmark. Most leasing companies use like-term Swap Rates that can be downloaded from the Federal Reserve's website ( www.federalreserve.gov/DataDownload/Download.aspx?rel=H15&series=7fbf8fc65ad44431bf467b3b7eef6bf2&lastObs=&from=&to=&filetype=csv&label=include&layout=seriescolumn&type=package).
• Define your desire for the lease to include the following applicable options: Ownership of the equipment at the end of the lease; Ability to return the equipment; The option to extend the lease; Extensions ' six-12 months at the Fair Market Value; Monthly extensions at the same rate; The right to buyout the equipment at its Fair Market Value.
• Evaluate all lease documents to determine whether they match the agreed-upon terms and to make sure no new language or terms have been added, and hold your leasing company accountable for what it has written in its proposal.

Never Too Late to Negotiate

The lessor invested in long-term relationships with its clients wants to take a proactive role in bringing collaboration and clear communication to the table with the organization's stakeholders. Nevertheless, it is surprising how often this key step is overlooked. Only with clear communication between the lessor and the company's stakeholders can expectations not only be managed, but met and even exceeded. That's a win-win, and the foundation for building trust and long-term relationships.

On the other hand, if your organization has a technology lease in place, is it too late to get organized? No, it's never too late to organize the company's leases. The great aspect of a free-market society is that you can always renegotiate terms. Re-evaluate your lease documents and invoices, and be on the lookout for items such as:

• Fair Market Value on Software;
• Fair Market Value language that is determined solely by Lessor;
• Quarterly Interim Rent/Quarterly Commencements;
• Seven-day window to return equipment or the lease extends for 12 months;
• No right to use of the Software at the end of the lease;
• Pro-Rata 1/30th Language;
• Long-term auto extensions if your notice of intent is missed;
• Notice windows that only allow you to give notice of intent between 90 and 120 days, or some variation thereof, before the end of the lease; and
• Requirement to return original boxing material and manual.

Conclusion

In the end, there are many benefits and reasons to consider leasing technology. Leasing technology guards against obsolescence, preserves credit lines, conserves working capital and partner capital, keeps bank lines of credit open for short-term use, and allows your firm to refresh its technology and equipment. Combined, these elements can provide financial and operational flexibility ' key strategic factors for any organization. It's important to avoid the pitfalls when confronted with some of the worst practices in leasing. Working with a vetted and trusted partner can not only assist your organization to navigate through the fine print, but also help your firm to strategize as it looks to maximize the value proposition of its technologies and equipment, and continuously creates itself leaner and more productive.

Marc Cram is regional manager for CoreTech Leasing, Inc., an independent leasing company working in partnership with more than 100 of the nation's law firms. He can be contacted at [email protected]. For more information, please visit www.coretechleasing.com.

CFOs need to deliver on ever-increasing pressures to improve transparency, value and service to their organizations. At this time of year, they are scrutinizing the available forms of funding ' existing bank lines, leasing or some combination of the two ' to determine the most efficient way to satisfy their space, equipment and technology needs, and keep their organizations performing at their competitive best financially and operationally.

Here's the good news on the equipment leasing front.

The Washington, DC-based Equipment Leasing and Finance Association (“ELFA”) reports economic activity for the $628 billion equipment finance sector. According to the 2012 Survey of Equipment Finance Activity (“SEFA”), new business volume grew 16.5% in 2011, marking the second year of growth following a decline in 2009 ' and independent lessors saw the strongest increase in new business volume.

At the end of 2012, ELFA is also reporting that the quality of loan portfolios and credit quality in the industry is strengthening. The index rose for the 30th consecutive month year-over-year, pointing to modest growth in demand for loans and in the wider U.S. economy. Specifically, leaders of ELFA state, “Companies signed up for $7.6 billion in new loans, leases and lines of credit in October, down 7% from September's $8.2 billion, but up 27% from $6 billion a year earlier.”

On the technology side, as reported by Gartner Research, organizations industry-wide are seeing accelerated rates of technology implementation and increases in collaborative needs, dictating new rules and greater dangers of obsolescence; it is no longer a question that leading-edge, high-performing technology is crucial to a company's ability to perform efficiently and effectively.

To this end, leasing offers a strategic avenue for providing top-of-the-line and current technology at a fraction of the purchase price. Whether an organization lacks sufficient cash to facilitate a full purchase or whether it desires to make the most of its IT budget by leasing rather than buying technology equipment, a company can choose a lease arrangement for equipment that would otherwise require a large capital investment in a single year. Leasing also frees staff from the burden of disposing of outdated equipment and ensures access to the most current IT tools.

The Complex

As the flurry of end-of-the-year reports coincides with beginning-of-the-year predictions, the IT 2013 budget benchmark numbers are in from CEB Global. See www.execu tiveboard.com/it-blog/2013-it-bud get/. On average, CIOs expect total IT budgets to increase by 1.8% in 2013. Operational expenditure will rise, and capital expenditure will stay flat, but beneath these seemingly stable numbers, CIOs are pushing forward with efforts to transform IT. They are reallocating resources to capture value from collaboration, insight and mobility; and building a service-based, and increasingly externalized and collaborative delivery model. Some additional details from the CEB report include:

• Information and Collaboration Projects Grow ' In 2013, project portfolios will include proportionately less investment in process automation, and more in information management and collaboration. For the third year running, information management and collaboration represents the largest project category, accounting for 32% of IT project budgets, compared with 30% for process automation. However, some companies plan to go much further. The top 20% of organizations in terms of spending on information management and collaboration expect to devote 66% of their 2013 project budgets to this category.
• End-to-End IT Services Reach Scale ' Since 2010, I have seen growing interest in end-to-end IT services, but many organizations experimented with the model, rather than implement it wholesale. This tentative stance is changing. By the end of 2013, the majority expect to offer at least some end-to-end IT services. And at roughly two-thirds of those organizations, services will account for more than 30% of the IT operating budget.
• New IT Roles Emerge ' Service management requires new roles. Seventy-eight percent of IT organizations already have or plan to create service managers; and 59% are creating service architects. I see a similar pattern occur as organizations invest in information management and collaboration. Eighty-four percent have or plan to have information architects, and 52% will have user experience designers.

Best Practices of Leasing Technology

In this complex nexus of the predicted IT landscape, many decision makers are turning to leasing equipment and technology for their organizations as a competitively advantageous way of performing in the new business model landscape. From a financial perspective, leasing allows companies to conserve their cash reserves, keep bank lines of credit open for short-term use, allows firms to expense lease payments rather than depreciate equipment, avoids potential losses on the sale of equipment, and allows IT to proceed with projects that may exceed the firm's budget. Combined, these can translate into optimal financial and operational flexibility when the lessor involved is a trusted and strategic partner in the organization's decision-making.

If an organization chooses to take advantage of the benefits of leasing technology, the next step will be to determine what kind of leasing and financing provider is the best fit for the company's unique set of needs. It is important to consider the lessor's service capabilities, industry and technology knowledge capital, client references, and reporting and invoicing capabilities. Know who will manage your account and who at the leasing company has decision-making authority. You must have someone you trust to turn to. Someone who will ask you what terms and conditions are most important to you and your firm.

In general, there are three kinds leasing and financing providers: the manufacturer or captive lessor, the independent lessor, and banks. With captive lessors, the majority of leases are for manufacturer-specific products and may impede upon your company's desire for customized and flexible firmwide technology solutions. It is also important to note that any discounting between parent and captive is often hidden. The advantage of banks is that they owe no allegiance to a specific vendor; however, the banks may not have an advanced understanding of the technologies that would allow them to be strategic partners for an organization making these decisions.

Independent lessors, on the other hand, have no allegiance to a specific vendor and are in a unique position to take a consultative approach. This is particularly important if your company needs specialized technical support in the decision-making process. An independent lessor, therefore, can be a strategic partner for your firm's unique set of concerns and may be able to provide more flexible and customizable solutions.

The following highlights some best practices when leasing technology.

Perform Due Diligence

When seeking out potential lessors, send out Requests for Proposals (“RFPs”). Make sure the company or bank you select will be there for you during the entire term of the lease, which could last up to five years.

Clarity

Provide the leasing companies with the following information, and let your potential lessor know from the outset you will require high levels of transparency:

• The term desired for the lease (frequently 36-60 month terms).
• Costs and equipment descriptions for hardware, software and other services. For hardware, provide the specific types and models of the equipment. With software it helps to provide a description of what it will be used for; this way, the leasing company can explain the importance of the software to the firm's operation when sent to a credit analyst. On the services side, be sure to list all services that may be needed for installation, maintenance, training, etc.
• The installation time frames. Will the project be installed over a month, or will you need an installation period with deposits for the vendors?
• Require that the Swap Rates be set for the date of the RFP to ensure that each leasing company is basing its rates off the same benchmark. Most leasing companies use like-term Swap Rates that can be downloaded from the Federal Reserve's website ( www.federalreserve.gov/DataDownload/Download.aspx?rel=H15&series=7fbf8fc65ad44431bf467b3b7eef6bf2&lastObs=&from=&to=&filetype=csv&label=include&layout=seriescolumn&type=package).
• Define your desire for the lease to include the following applicable options: Ownership of the equipment at the end of the lease; Ability to return the equipment; The option to extend the lease; Extensions ' six-12 months at the Fair Market Value; Monthly extensions at the same rate; The right to buyout the equipment at its Fair Market Value.
• Evaluate all lease documents to determine whether they match the agreed-upon terms and to make sure no new language or terms have been added, and hold your leasing company accountable for what it has written in its proposal.

Never Too Late to Negotiate

The lessor invested in long-term relationships with its clients wants to take a proactive role in bringing collaboration and clear communication to the table with the organization's stakeholders. Nevertheless, it is surprising how often this key step is overlooked. Only with clear communication between the lessor and the company's stakeholders can expectations not only be managed, but met and even exceeded. That's a win-win, and the foundation for building trust and long-term relationships.

On the other hand, if your organization has a technology lease in place, is it too late to get organized? No, it's never too late to organize the company's leases. The great aspect of a free-market society is that you can always renegotiate terms. Re-evaluate your lease documents and invoices, and be on the lookout for items such as:

• Fair Market Value on Software;
• Fair Market Value language that is determined solely by Lessor;
• Quarterly Interim Rent/Quarterly Commencements;
• Seven-day window to return equipment or the lease extends for 12 months;
• No right to use of the Software at the end of the lease;
• Pro-Rata 1/30th Language;
• Long-term auto extensions if your notice of intent is missed;
• Notice windows that only allow you to give notice of intent between 90 and 120 days, or some variation thereof, before the end of the lease; and
• Requirement to return original boxing material and manual.

Conclusion

In the end, there are many benefits and reasons to consider leasing technology. Leasing technology guards against obsolescence, preserves credit lines, conserves working capital and partner capital, keeps bank lines of credit open for short-term use, and allows your firm to refresh its technology and equipment. Combined, these elements can provide financial and operational flexibility ' key strategic factors for any organization. It's important to avoid the pitfalls when confronted with some of the worst practices in leasing. Working with a vetted and trusted partner can not only assist your organization to navigate through the fine print, but also help your firm to strategize as it looks to maximize the value proposition of its technologies and equipment, and continuously creates itself leaner and more productive.

Marc Cram is regional manager for CoreTech Leasing, Inc., an independent leasing company working in partnership with more than 100 of the nation's law firms. He can be contacted at [email protected]. For more information, please visit www.coretechleasing.com.