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.)
A good, clear example of vertical software is an auto parts
store - they use software that's specifically written for
the auto parts industry. Another example is your local
jewelry retailer - they likely use a point-of-sale system
specifically made for the jewelry industry.
To understand how software financing and software leasing
can positively affect a business, it is important to
understand the advantages of vertical software first.
For most businesses, Vertical Software usually means far
more efficient business processes. In the case of an auto
parts store, for example, the software will already
anticipate the thousands of automobile makes and models.
And will almost certainly be updated every year. The
jewelry store's software will differentiate the subtle
differences between two diamonds by any number of
categories. And so on.
In fact, these "vertical" software programs are so
effective, and become so crucial to day-to-day operations,
that businesses often need this type of software to remain
competitive. In many cases, it's not an option to do
without.
However, since the software is so narrowly focused, it
usually comes with a hefty price tag. The developer will
sell relatively few copies as opposed to a word processing
program (which will sell in the millions), so they must get
a premium for their work. Vertical software can sometimes
reach five figures for a single license.
This brings an obvious problem: "Businesses need the
software, but it's very costly to buy outright."
And that's where software leasing and software financing
come in - business don't have to "buy" it upfront.
The Advantage of Software Leasing and Software Financing
The advantage of financing or leasing software is clear:
Software leasing and software financing take the huge
up-front cost of new software out of the equation. Like
most other business equipment, software is now beginning to
be seen as a tangible asset (this was not always the case.)
This means software can largely be treated as any other
equipment purchase in the case of financing or leasing. A
business can finance that new ERP system instead of having
to budget a huge cash outlay.
This can be very beneficial to the bottom line, as software
generally pays for itself over time. In fact, since
"vertical" software almost always reduces the cost of doing
day-to-day business, leasing or financing said software can
actually create a positive cash flow right away.
But Who Offers Software Financing or Software Leasing, and
how does it Work?
It's true that software developers have been very slow to
embrace the business model of software financing or
software leasing. They would prefer to be paid up front for
their software.
Likewise, banks, being part of an "older" industry, are
also largely reluctant to finance software.
However, third party equipment finance companies who
specialize in small and medium sized business equipment
financing often offer attractive software lease and
software financing packages. What happens is the equipment
finance company pays the developer in full, and then
provides the software to the end user under a finance or
lease agreement, often at very attractive rates. In all
actuality, it's fundamentally the same as financing or
leasing most other equipment.
Of course, like any other financing, the agreements can
(and will) vary from traditional fixed rate financing to a
"software lease" with a buyout at the end, etc. And the
rates and terms also vary - your individual equipment
finance company will have more details.
All in all, software financing and software leasing have
definitely entered the business consciousness, and because
it is so friendly to the bottom line, it is a business
model that is here to stay.
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Software Leasing and Software Financing are only a few of
the services provided by
http://www.crestcapital.com/software_financing
Regardless
of the size of your company, Crest can provide you with the
equipment financing and working capital you need to
successfully grow your business. Learn about financing
options that can increase your bottom line and reduce your
2007 tax bill with a
http://www.crestcapital.com/equipment_lease_calculator .
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