To Own or Not to Own…That is the Question.
“We’re moving from the customer owns the equipment to we own the equipment,” said Gerri Gold, SVP, and Chief Operating Officer of Hewlett Packard Enterprise Financial Services (HPE). She was featured in an article by Monitor, a leading publication of The Leasing Industry. “Ms. Gold notes that many customers buy equipment or software and capitalize it.” She went on to state, “Once they own it, it’s virtually a sunk cost.“
However, a lease contract in which a customer does not own the equipment is not a new concept in the Lease Finance Industry. Ms. Gold may refer to it as a “Pay Per Use” Model but it is essentially, what those of us in the industry describe as, an Operating Lease.
While the article states that this finance structure is central to the “circular economy” that enables businesses to “reduce, upcycle, re-market and recycle”, the typical operating lease offers similar options to the customer at the end of the term:
1. Purchase
2. Renew
3. Upgrade
4. Re-market
An outright purchase is unlikely if the equipment that was financed is subject to obsolescence. For customers who want to remain competitive and efficient, they will choose to upgrade to the latest technology. As Ms. Gold explains in the article, manufacturers like Hewlett Packard are committed to “manufacturing products that can be repaired and recycled easily”, which is critical to this effort.
The renewal option allows the customer to keep the equipment for a pre-determined length of time while they decide on the best option. The Clune renewal term is month to month while almost all our competitors automatically renew their customers’ leases for terms of 3, 6, or 12 months at a time.
If new technology has been developed, the customer can easily upgrade under the same terms. This allows for easy budgeting and may also allow companies to write off the transaction more quickly, resulting in tax advantages.
Ms. Gold claims, “The circular economy has created a 'rebirth' of asset management that involves extending the useful life of equipment.” Who knew that leasing companies have been offering this product since the origins of the lease finance industry but just called it by another name?
Let us know how we may serve you.
It’s the Lease we can do,
Kevin F. Clune, CLFP
