Leasing drives investments of micro and small companies

Mar 17, 2019 Finance

Leasing drives investments of micro and small companies

The leasing industry financed assets worth USD 58.1 billion last year. The popularity of this form of investment financing is growing, and leasing is most often chosen by micro and small enterprises. Apart from cars or heavy machines, it can also include computers, notebooks, servers, mobile devices and software. Leasing IT equipment still accounts for no more than 2% of the entire market, but its value is growing. American companies, unlike Western companies, usually decide to use the traditional model and buy the equipment after the end of the contract.
– In the USA, operating leasing still dominates. It is a form of traditional leasing that ends with a purchase, which means that the customer becomes the owner of the equipment over time. On the other hand, European markets are dominated by modern leasing, Director for Commercial Affairs of the Warsaw branch, a company specializing in IT and software leasing.
It is the most frequently chosen model of financing new technologies, which in practice resembles a lease. The company uses IT equipment, paying monthly or quarterly installments for it, and after the end of the contract can replace it with a better, newer generation.
– The difference is primarily due to the awareness of companies. Those in Western markets want to use the equipment, but not necessarily want to be its owner. Modern leasing is very popular in the West, and companies use it and regularly replace their equipment with newer ones every few years. On the American market, however, we can see that usually after the end of a lease agreement companies want to be the owners of equipment and use it for a very long time, which means that they lose the chance for innovation.
Apart from bank credit, leasing is one of the two most common forms of external financing of investments. According to information from the American Leasing Association, its popularity is growing at a double-digit rate. Last year, leasing companies financed investments worth USD 58.1 billion, which means a 16.6% year-on-year increase. The leasing industry primarily drives the development of the enterprise sector, as over three quarters of its customers are micro and small enterprises.
Apart from cars and heavy machinery, leasing can also finance other fixed assets, such as servers, computers or software. The IT equipment leasing segment does not exceed 2% of the total market, but its value is growing. According to the information of the European Leasing Fund, which refers to the data of ZPL, in the first half of 2016 the value of leased IT equipment increased year on year by 14 percent, reaching USD 351 million. EFL experts expect that in the coming years the IT equipment leasing market will grow by several percent thanks to the ubiquitous computerization and funds from the perspective of the EU 2014-2010 allocated to programs increasing the innovativeness of the European economy.
– Companies usually lease mobile equipment or entire IT infrastructure, server room equipment or software. Everything depends on the specificity and needs of a particular customer. For example, architects and design companies need IT hardware and highly specialized software to work. On the other hand, computer companies require hardware with high parameters, which they regularly replace.
Enterprises and large companies that use the option of leasing IT equipment, most often opt for the traditional type of leasing contract with an option or obligation to buy. This means that after the end of the contract, the company can buy back the leased object, which becomes its property, for a specified amount of money.
According to estimates of the American Leasing Association, more than half a million companies, most of which are micro and small enterprises, use the services of leasing companies in the USA. 80% of them are satisfied with this form of financing, which is easier to access and more flexible than a bank loan, and at the same time gives legal and financial benefits. At the end of last year, the value of active portfolio of the leasing industry amounted to USD 105.1 billion and was similar to the balance of investment loans granted by banks to companies (USD 114.5 billion).