frequently asked questions …
The rental term is usually over 36 months, with options ranging from 12 through to 60 months. We have plenty of plans to choose from and Spartan is constantly creating new ones.
In addition to pure rental finance, Spartan also offers a host of additional Value Added Services , which can include procurement, installation, insurance, maintenance, software finance, asset management, support and disposal of ICT and all related technology equipment. This equipment can include telephony, office automation, and even consumables. How you decide to use these offerings is entirely up to you and your business.
Depending on your unique situation, Spartan can help by crafting a rental option tailored to your exact requirements and needs. It can be a pure rental, where you have already lined up the vendors you wish to use to supply, install and support your equipment, and you are just looking for a rental partner to manage the financial aspect of your equipment. You can also turn to us if you need any additional service.
In 2006, a poll by Tickbox.net showed that workplace dissatisfaction increased significantly with the age of the computer equipment in use. People simply cannot work with old technology and slow computers [this will only increase as technology is improved]. Business must stay up to date with technology in order to remain competitive and productive. However, due to budgetary problems, it is hard to buy new computers every 3 years. This is where the “Rent vs. Buy” decision must be taken.
Yes and No …
Yes – because:
- it includes an interest cost
- just as financing your car and house is more expensive than buying cash – because of the interest cost
No – because:
- if you need your cash float or your overdraft to pay for short term working capital needs [like marketing, staff, training, etc.], then the opportunity cost of using your cash to buy technology or office infrastructure would be very high – in that it would stifle your growth by holding back your marketing, holding back your recruitment, holding back your training
- sound business practice says that you should be using your cash in your business to generate higher rates of return – than the bank would give/charge… buying a long term asset with cash means you are not generating sufficient return in your business
- you can’t put a price on peace of mind – cash represents the oxygen and life blood of your business … therefore having sufficient cash buffer allows you the confidence to make the right strategic choices OR the resilience to withstand unforeseen challenges or mistakes
A line of credit typically has to be secured by R 5 to R 10 of high-quality assets for every R1 borrowed. This makes it quite a limited resource that should be kept in reserve for items that cannot be financed in any other way. The line of credit should be the last resort, in case nothing else works. Lines of credit are also usually short term funded, so there is a substantial risk of interest rates going up over time. On the other hand, rental rates can be fixed over the entire rental period, making forecasting and budgeting much easier. Finally, lines of credit often require a company to pay additional fees, or incur additional costs.
Short term credit is an important resource to financial managers. But even when rates are comparatively low, and particularly in a challenging economic environment when short-term credit is often hard to come by, it makes more sense to use an external, more cost-effective source of financing for IT investments, and to preserve short-term credit for other core investments. Unlike short-term credit, a fixed-rate rental ensures a regular, low monthly payment that’s easy to budget for. It reduces the total cost of ownership, since the lease payment reflects the residual value. It also eliminates end-of-rental disposal issues. Hardware rental also helps your customers meet changing capacity requirements by letting them add or upgrade systems at any time, during the rental term. This is what rental can do for your business, while short term credit offers none of these advantages
The prospect of avoiding interest and financing charges by paying cash is pretty attractive to some companies. But cash isn’t free. It’s a limited asset, and there may be better ways to use it than tying it up in a depreciating asset like IT. Because, face it, in 2 years your IT resources of today will have become relatively small. The rate at which technology depreciates is incredible. Keeping cash at hand makes it much easier to seize a business opportunity before a competitor can arrange financing, or to weather a downturn that cripples your competition. By spending cash on IT, a business can also lose the tax advantages and residual value benefits provided by renting. The residual value is the amount that the person renting can expect to recover by selling the asset after the rental agreement ends. Ultimately, using cash to invest in your business provides returns that are far higher than the interest rate of a rental. It is very clear that renting is the best choice.
A business may do a net present-value comparison between rental and purchase, and conclude that owning is cheaper. But as we showed above, the cost of cash is usually higher than the debt rate. Cash is a scarce asset on the balance sheet, and a reasonable position is to use the Weighted Average Cost of Capital as the discount factor. Even if a business believes today that the equipment will be kept for a long time, a lot of things can change. A 36-month fair market value (FMV) rental preserves substantial future flexibility at little to no additional cost.
If a company is considering a term loan, they should carefully consider all of the terms and conditions that might come with it. There are usually some fees involved, and the company may be asked to make a down payment, or to keep compensating balances. These are all additional expenses that a lease will not incur. When compared to obtaining financing through a bank or other financial organisation, remember the added value that Spartan brings as a leading provider of IT financing. Due to our experience and education, we are experts not only in financing, but also in technology. Renting with Spartan will help companies keep up with technology by allowing them to replace or upgrade equipment – either mid-term or at the end of rental. We can take an aggressive residual-value position on equipment from many vendors, and provide the customer with fair market value on mid-term exchanges. And as a total IT financing solution provider, Spartan can structure a rental that rolls hardware, software and services into a single contract with a single periodic invoice. This leads to a simplified budgeting process – the dream of any business owner!