In the finance world there are many inter-changeable commercial finance products. The very terms “software leasing” and “software financing” are confusing to many businesspeople. This is due to the fact that software is typically not seen as something that is purchased over time.
This view is shared by both end-users, and the developers of software. Companies who think nothing of financing a vehicle or a new computer system will stress over how they will pay for expensive new business software. And the producers of software see no need for offering a software leasing or a software financing option.
But times are changing.
Third party equipment finance companies – companies who offer small and medium size businesses equipment financing and working capital – have responded to a need for software financing and software leasing. Thus, they are starting to include software amongst the equipment they finance or lease. There is one big overriding reason for this shift:
The High Cost of Buying Software
The simple fact is this: Software can be very, very expensive. Oftentimes more expensive than the hardware that runs it.
Now, keep in mind that when we are talking about software in this way, we are generally talking about “vertical software”. Vertical software is software that is written for a specific, narrow industry (this can include industry-specific point-of-sale software, ERP systems, specialized databases, etc). It is not software that’s available on the shelf at your local office supply store (the software you see there, even the business programs and operating systems, are “horizontal software” – they can be used across a variety of industries, and are relatively affordable.)
To understand how software financing and software leasing can positively affect a business, it is important to understand the advantages of vertical software first. Before doing any type of financing, it can be advantageous to speak with your accountant as there are different tax structures to be considered when dealing with financing/loans versus leasing.
This being said, not all programs are available to all applicants. For this reason, it is a good idea to speak with you accountant prior to applying for financing for your business and then to show the approvals to your accountant before signing. In some circumstances the program your accountant wants for you, many not be available for you so a compromise will need to be made.
