Technology Financing
by Christopher Elliott
used with permission from the Microsoft Small Business Center

Your growing business is ready for new PCs or software. How do you buy it?

It's a common challenge for small businesses. New technology purchases top the list of capital expenditures in a survey of small businesses, with 43% of respondents saying they planned to make a buy in the next six months.

But that's easier said than done.

"Increasingly, small businesses are delaying necessary upgrades," said Laura DiDio, a research fellow for the Yankee Group. "We only see about a quarter of companies doing an upgrade every two to three years. Half of the companies are on a four, five or even a six-year upgrade path."

How important is new equipment to your business? About a third of small businesses surveyed for a IT toolbox study found that they expected to increase staff productivity through the purchase of new computer equipment.

Getting money is a major obstacle for small businesses — some 16% of small businesses report having been denied for a loan or line of credit. The American Express survey, for example, cites several barriers to securing financing, including:

€the size of their business was the biggest challenge.
€the overwhelming paperwork requirements were an obstacle.
€the limited knowledge of financing resources.
€the lack of documentation to support their loan application.

And when it comes to financing IT purchases it's often more difficult to secure financing because lenders are uncomfortable financing software and implementation services.

So when it comes to technology purchases, here are your choices. (The last option is Microsoft Financing, a new financing program designed for small businesses.)

1. Pay with cash
€When to use: Smaller purchases such as a new personal computer (PC) or a few software licenses.
€Advantage: You pay for it up front, and there are no further finance charges or fees.
€Disadvantage: Your business has to come up with the money immediately, which can cut into your budget for other important items, like payroll. Even a few thousand dollars is enough to be a deal-breaker for some companies.

2. Use a line of credit
€When to use: When technology costs more than $5,000, for, say, a complete IT infrastructure, including servers, PCs, LAN or WAN access, security applications, storage, peripherals software, licenses and support contracts.
€Advantage: You don't need to come up with the money right away.
€Disadvantage: Your company's line of credit is finite, and you may want to save it for something more important, such as payroll or an emergency expense — especially if there are other options available.

3. Leasing
€When to use: If you are only purchasing PC hardware and want to upgrade it every couple of years.
€Advantage: Leasing also preserves your company's credit. There can also be tax advantages to leasing computer equipment, but it is best to consult with a professional accountant to find out how your business would specifically benefit. Some leasing agreements also allow you to trade your old leased equipment out at the end of the term for new equipment.
€Disadvantage: The agreement is typically limited to hardware so you'll still have to find funds for software and/or implementation services on certain leases. Note:When you dispose of the equipment prior to the end of the depreciation term, you can lose your tax write-off.

4. Microsoft Financing
€When to use: For larger purchases, such as when you want to €get everyone in your company on the same hardware or software version. Or the solution includes a large amount of software and/or implementation services.
€Advantage: Microsoft Financing addresses some of the other shortcomings of traditional loans, such as technology and services that are usually not covered. This new financing program will finance technology purchases that can start as little as $3,000 and offers fixed payments for the loan term.
€Disadvantage: Your business is still
€taking out a loan, so some of the disadvantages of a traditional loan still apply. Check with your accountant to find out if this option makes sense for your company.

Whether you decide to pay for your new purchase with cash, take out a traditional loan, or opt for the Microsoft Financing plan, experts say timing is essential. Wait too long to make an upgrade and your company could fall behind, lose business and risk becoming uncompetitive.

"Each successive version of a new operating system improves reliability and performance by between 20% and 30%," said DiDio, the Yankee Group analyst.

What's more, the business applications are more scalable, reliable, secure, longer-lasting and with better features and functionality. And it has the potential to give your company a boost -- for greater efficiency and, ultimately, profitability.