Renting vs. leasing. Isn’t it just semantics, two words that basically mean the same thing? And let me be honest and the first to admit: languages have never been my strong point since I was in school.
However, when it comes to hardware as a service (HaaS), there is a huge difference between renting and leasing. And you need to pay attention because your business will ultimately pay the price.
On the surface, a hardware lease and a rental are similar – you pay a monthly fee for use of hardware that you do not own at the end of the term of the lease or rental.
The key difference between the two is where the liability lies for the two options. With a hardware lease, the lessee is fully liable for the hardware during the term of use. In a hardware rental, however, you are not liable, the renting company retains full liability.
Where liability lies has implications. For instance, a hardware lease will not include insurance – you need to take it out as lessee because you are liable. Under hardware rent, the renting company has insurance because they retain liability. For this reason, too, most leases do not include hardware support and repairs, standby units or warranty management, while the best rental options do.
The most important implication of this difference in liability is the one on your ability to borrow.
Because you are liable for an asset under a hardware lease, you get to record that piece of hardware as an asset on your balance sheet. The thing is, with it goes the amount you owe for using that hardware. Most organisations lease these assets over a longer period than the period over which they will depreciate the asset in their books. The result is a negative impact on your gearing – in other words, you are able to borrow less than you would have if you did not lease these assets.
One of the major reasons businesses consider HaaS instead of buying their hardware cash is because they do not have adequate funds to buy those assets upfront. It is a valid reason, but if you then opt for hardware financing or a hardware lease, the result is that you lose the ability to obtain funding for other, income-generating endeavours.
Yes, I listed cash flow benefit and alternative financing as benefits of HaaS in my previous article, “Our new HaaS Offering” but you do not want these benefits at the expense of the other, arguably more important, benefits that are improved gearing and using this gearing to finance things that will generate more income for your business.
So, if you are interested in HaaS, make sure that you know what you are signing up for. Make sure that your contract is a commercial rental and not a lease so that you can get all the benefits of HaaS.
You are always welcome to contact me if you want to know more about ICT hardware rental or want to discuss how these options play out in your business.
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