Why Would a Company Lease Their Software?

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Most small and medium-sized businesses need software to help them schedule appointments, manage customer relations, deal with finances, manage the supply chain, and advertise effectively. However, good software can be extremely expensive, which is why many firms opt for software leasing. Financing software for small business can be very effective because it reduces upfront costs and facilitates budgeting.

What’s more, it allows companies to remain more flexible and versatile, which is important in current market conditions. Because there are many leasing options, every business can find a solution that suits them well. Today, we’ll have a look at some of the reasons why leasing software is a good idea and discuss how you can get started with a leasing company.

Financing Software for Small Business: Why Choose Software Leasing?

When you lease a piece of equipment, the lessor retains ownership of it, and you are in essence borrowing the item from them. At the end of the term, you can either give it back, keep it, or exchange it for a different tool. For many small businesses, this is an easier and more cost-effective way of gaining access to the necessary equipment than buying everything outright.

Just like furniture, machinery, and industry-specific gadgets, software can be leased for a fixed term. This is great for businesses that want to spend less money upfront, remain more flexible, and regularly gain access to new programs. Good office equipment leasing companies can customize their leases, so they can serve both new and established businesses.

You Can Control Your Finances Better

For very small businesses, the cost of software can be kept low, sometimes even under $100 per month. However, as businesses grow, they often end up paying several thousand every month. This can eat into profits and reduce the viability of a business. If you’re struggling with rising software costs, you should think about leasing programs instead of purchasing them directly from the software company.

You’ll pay the same amount every month for the duration of the lease, so you’ll know ahead of time how much you’ll spend over the course of a year. What’s more, you won’t have to spend any money upfront. This is especially advantageous for new companies because it eliminates the need for funding, but it is also helpful for businesses that want to expand quickly and therefore need to minimize their costs.

You Get Access to the Newest Software

When you buy software, you are making a significant financial commitment to a certain product. When a newer version comes out or a better product gets released, you can’t just switch because you’ve invested so much in your existing software. This can hold back your company’s progress and stop you from making the most of all the IT solutions out there.

When you lease, you can choose to drop software that isn’t working for you anymore or upgrade to a newer version as soon as the term is up. At Noreast Capital, we usually offer leases that are between 12 and 60 months long, but if you’re not sure about a certain program, you might be able to lease it for less than a year.

You Remain More Flexible

Another major advantage of leasing is that you remain much more flexible. Because you haven’t spent a lot of capital upfront, you can easily switch course. This is particularly important in the current market environment because conditions are changing rapidly, and your customers’ needs might not remain the same over time.

For example, many companies that bought software and other equipment struggled to adapt during the COVID pandemic, when they had to pivot and offer new services due to social distancing regulations. In contrast, a company that leased its software could simply request a different program or cancel its lease when the term was up. This saved the business money and made it easier for them to alter their services to fit their customers’ new needs.

There Are Leasing Contracts for Everyone

Leases come in many forms, and they can be adapted to the individual company. When financing software for small business, it is usually sensible to choose a flexible lease, so you have the option to either keep using the program, return it, or select an updated version at the end of your term. When you get in touch with Noreast Capital, we will match you up with an account manager, who can help you gain access to the lease you need.

They will speak to you about your business’s background, your customer base, and why you would like to lease software. Then, they can come up with an agreement that suits your individual situation. If you’re a seasonal company, you can pay more during the busy periods than during your quieter months. Similarly, new companies can delay payments for the first few months so they have a chance to build up a solid customer base.

Leasing Is Tax Deductible

When you buy something, you might be able to deduct the expense from your taxes. However, you’ll only benefit from this deduction for one year, since you’re spending all your money upfront. When leasing, you have an ongoing expense you can deduct from your taxable income for years. This can be a more effective way of keeping your company’s taxes reasonable in the long term.

The exact deduction method and the amount depend on the kind of lease you take out and your business’s tax status. If in doubt, you should speak to a qualified accountant, who can tell you how and where to list your lease on your tax return.

Who Can Lease Software?

Most software leasing companies prefer to work with businesses that have a solid reputation and have been in operation for at least two years. To prove that you will be able to pay your lease every month, you might have to show your account manager your bank statements and trade references. Depending on your company’s industry and the type of lease you’d like, you might also have to provide financial statements.

Startups and businesses that haven’t had time to build up a reputation can still get a lease, as long as the owner has a solid financial background. If you’re not yet an established company, you’ll have to offer a personal guarantee to the leasing company. What’s more, you’ll need to provide documents like supplier contracts, pro forma financial statements, business plans, and the owner’s resume.

What Kinds of Software Can I Lease?

You can lease a wide variety of software, and you can select either one product or multiple IT solutions. Some of the most popular programs here at Noreast Capital include customer relations management software, business management software, accounting programs, scheduling software, and inventory and supply chain management programs. However, we also offer options that are specific to an industry, for example, graphic design software.

Should I Use a Leasing Company?

Many software companies allow you to lease their products directly from them. So, should you choose this option, or should you obtain your products through a dedicated leasing company? Using a leasing business like Noreast Capital is usually best because you’ll be able to lease multiple products from the same company.

If a certain program is no longer working for you, you can simply speak to your account manager and switch to different software. This isn’t possible when you’ve leased your software directly from the company. Instead, you’ll have to end your lease, find a new software company, and apply again. As you can see, this is much more of a hassle.

Should I Also Lease Other Equipment?

The best leasing companies offer a wide range of products. Once you’ve passed the application process, you can lease other products such as business equipment, office furniture, electronic gadgets, and even heavy machinery.

In many cases, leasing several items from the same company is a good idea because it allows you to conserve even more capital and take advantage of the above-named benefits of leasing. Since you won’t have to apply again, the process will be much quicker than if you had to work with each equipment manufacturer directly.

How to Get Started

There are many reasons why thousands of companies around the country are choosing to lease their software and other tools. If you believe that this could be a good strategy for you, you can start by calling or emailing an equipment leasing company. You’ll be matched with an account manager, who will let you know what documentation you have to provide.

Once you’ve submitted your application, you’ll get an answer within a few hours or days. Then, you’ll receive a line of credit, which you can either save for later or use to gain immediate access to the software. Any time you run into issues or would like to lease additional products, you can call your account manager.

Financing software for small business is often a good idea because it allows companies to stay more flexible and up-to-date and reduces the need for upfront financing. Almost all kinds of software can be leased, and there are options for various types of companies. Get in touch with us at Noreast Capital to find out more about our software leasing options and to open your first line of credit.