It’s a Difficult Time for Companies That Need Hardware to Meet Growing Demand and Keep Moving Forward
As a manufacturer, distributor, reseller or integrator, you understand how challenging the current equipment hardware landscape is. Supply chain shortages and inflation, both of which will be industry companions for many months to come, have added extreme lead times and excess costs to hardware purchases.
Despite that, the companies you support need enterprise hardware more than ever to meet growing demand from businesses and consumers alike. It’s a complex situation that has led many companies to either continue dealing with existing hardware despite depreciation and outdated performance, make the CapEx investment in new hardware despite the painful cost, or turn to alternative options such as equipment leasing and ”as-a-Service” solutions.
Due to these challenges, the latter has been growing in popularity — according to a recent report, the asset leasing market is expected to grow substantially over the next several years — and it’s becoming easier and easier to see why. If you’re considering this avenue, there are a few types of equipment leases you should consider to make the best decision for your organization. River Capital Finance offers all three, and each has its advantages. Let’s dig in.
1. Capital Leases
A capital lease is essentially a loan. Once you determine what equipment and hardware your customer needs, you’ll work with a leasing company to help them finance it. At the end of the loan term, the organization will own the equipment in full.
While this might seem straightforward, it’s important to keep in mind that technology changes along with the needs of the organization. Although your customer will own the equipment after a few years of paying on it, and they may be able to get a few more years of usefulness from it, that equipment may begin to drop in performance or no longer meet their needs. Additionally, they’ll have to capitalize and depreciate the equipment over its lifespan.
That said, if your customer or prospect has the resources or strategic purpose to take on a capital lease, there are a few key advantages of obtaining this type of equipment lease from River Capital Finance. Only the equipment that is leased is encumbered, and the equipment itself is the only collateral in the deal. We don’t use your customer’s facilities, receivables, or any other assets as collateral.
2. Fair Market Value Lease
Another type of equipment lease is a Fair Market Value (FMV) operating budget structure. Rather than pay a larger amount for enterprise hardware via a capital lease and using CapEx resources, your customer can get the hardware they need with added flexibility using OpEx resources. At the end of the lease, typically around three years, they’ll have four options:
- Return the equipment with no future obligations — Your customer returns the equipment and can explore other options elsewhere as needed.
- Renew the equipment lease for another term — Allows your customer to continue using the same equipment or to upgrade to new equipment and set up another lease term.
- Purchase the equipment at fair market value — If your customer wants to keep the equipment versus turning it in, they can buy it outright based on the fair market value of the equipment at that time.
- Extend the lease for a shorter period — If they need a bit more time to use the equipment before making a decision or going another route, your customer can extend the lease — with the same equipment — for a shorter period.
3. The Master Lease Agreement
River Capital Finance offers a Master Lease Agreement (MLA) for organizations that will be adding or swapping hardware multiple times throughout a lease term. Whether you’re working with us to secure a capital lease or a FMV lease for your customer, if they have a new equipment need and have an MLA in place, you’d simply let us know what your customer needs. We’d add that equipment to their existing lease agreement, and they’ll be all set.
This saves you from having to negotiate multiple leases, eliminates the need to deal with excess documentation, and curtails the complexity of having multiple lease schedules running simultaneously. You’ll be able to add and cycle equipment through the MLA as needed, helping your customer’s organization stay productive while minimizing the financial impact of new hardware.
The as-a-Service Model Advantage
Similar to hardware-as-a-service (HaaS) or robotics-as-a-service (RaaS), our as-a-Service arrangement allows you to create a program — including a rental option — based on what your customer needs. The as-a-Service model ensures your customer only pays for what they use. This is an ideal route because you’ll be able to include valuable services and support in the agreement, such as adding in software and maintenance to ensure the equipment continues to perform reliably. In the event that a piece of equipment is damaged or needs repairs, your customer will simply send it in, and a spare will be sent back to them right away.
Additionally, the as-a-Service model ensures that equipment will never be more than a few years old at any one time. Because it’s based on a FMV lease or a rental arrangement, your customer’s contract will typically be set up for a three-year term. At the end of the contract, they can renew or go another route. If they renew, their old equipment will be cycled out for new versions. This is ideal if your customer is concerned with obsolescence and depreciation. Plus, it saves them from having to explore new solutions every few years (and avoid making large investments).
Let’s Find the Right Option for Your Customers
River Capital Finance has been supporting organizations with different types of lease agreements for decades. Whether you’re just beginning to explore your financing options or are looking to provide more cost-effective solutions for your customers than burdensome CapEx investments, our team is here to help.