The IT manager of ABC Co. Pte Ltd has planned to carry out an upgrading/revamp of the company's IT infrastructure and the estimated expenditure for this upgrading exercise amounted to S$100,000.

However, due to the poor business climate and difficulty in obtaining bank credit facilities, the financial controller of ABC Co. is hesistant about making a sizeable capital expenditure at this point in time and proposed either delaying this expenditure or carrying out the IT upgrading exercise in stages. This places the company in a dilemma:

• between continuing its business operations using an information system which is inadequate in supporting its present business operations; or
  
  
• putting a strain on the company's operations cashflows.

This concern was highlighted to its Acer Computer IT vendor who proposed leasing the required information systems instead of an outright purchase. Through leasing, the company can carry out its upgrading programme and at the same time not put a strain on its operating cashflows.

Acer Computer Singapore was contacted and a financing proposal was presented as follows:

Description of IT Equipment

Lease Schedule

Finance Lease

End-of-Lease Buyout Option - S$1

Operating Lease

Note:

For operating lease, the security deposit will be returned to the lessee upon returning the lease equipment in good order.

What is a suitable lease type for me?

If you intend to own the equipment and will like to spread your IT investment over a time period, you should go for a finance lease where at the end of the lease term, you can own the equipment by exercising the buyout option.

Alternatively, if you need to keep in pace with the most current market technology to stay competitive, you should opt for an operating lease where at the end of the lease term, you will probably return the equipment to us and acquire newer technology through a new lease or renew the lease if you do not need to upgrade technology yet.

As ABC Co. do not anticipate the need to upgrade its information systems for the next 4 years but will continue using it beyond the lease term, ABC Co. should opt for a finance lease which is more economical. The company can choose to own the equipment at the end of the lease term and when it is time to upgrade to newer technology, ABC Co. can either sell off the IT equipment through our disposal services or sell the equipment to its employees as staff benefit below market rates.

How do I determine my lease term?

Length of lease term is one of the factor which determines your monthly lease rental payments. A low monthly lease rental payment means a longer payment period and vice versa. Thus, based on your company's cashflows, you can choose the appropriate lease term.

Given ABC Co.'s situation, we recommend a 2-year finance lease with a S$1 buyout option. Our rationale being :

	For an affordable monthly rental of S$4,417, the company can carry out its IT upgrading program to stay competitive and yet not put strain on its operating cashflows.
	ABC Co. can choose to own the lease equipment by exercising the S$1 buyout option available at the end of the lease term.
	ABC Co. can enjoy the comprehensive warranty service or purchase an extended warranty service provided by Acer Computer Singapore and avoid any unnecessary operational delays in the event of any equipment breakdown.