Let’s face it — 2020 hasn’t been the most stellar year for a lot of companies. There is still uncertainty about what will happen COVID-19 and the rest of the year. As a result, some companies choose to hold on to their cash and not make capital purchases. Others have frozen their budgets.
With the end of life for the popular E4D coming on December 31, 2020, many IBM i shops face Extended Support. This support is limited in scope. You can only get a contract for 12 months, and there are no guarantees. IBM Extended Support is better than IBM’s no option, but it’s not the best solution.
If you’re one of these companies struggling to navigate budget constraints in 2020, we have a suggestion: financing. If you’re not worried today, but you want to hold on to your cash, financing is also a fit for you. Do you refresh your hardware on a regular three to four-year cadence? Financing will save you money.
How Does it Work?
IBM Global Finance (IGF) offers leases to companies who are purchasing IBM hardware or software solutions. There are two leasing options; Fair Market Value (FMV) and Full Payout (FP). You can choose the option that is best for your business.
With an FMV lease, you keep your equipment for three to four years and then turn it in for new equipment. This option is less money per month than if you plan to buy the equipment when the lease is over. The reason is that when IBM takes the equipment back from you, it still has value to them. You get new equipment and a new lease. The lease option is excellent for companies who are in a regular refresh cycle.
A Full Payout Lease is a loan. You finance the equipment’s cost over the term, and when paid in full, you own the equipment. This option costs more per month because you keep the equipment at the end of the term. At that point, you would only need to pay any maintenance fees to continue using the same hardware. This is an excellent option for companies who keep their hardware for a long time. With a five-year lease option, you can spread the systems’ cost across time, allowing you to maximize your IT budget dollars.
Why Businesses Like It
Businesses like leasing options because they can hold onto their cash and budget for the monthly expense over the lease term. When you can take a capital expenditure and spread the cost out, it helps the business better understand infrastructure costs. Plus, it’s easier to budget $2,500 a month for five years than it is to for $100,000 all at one time.
Fair Market Value leases will save you money over the purchase of the hardware. You get to use the hardware, turn it in, get new hardware, and pay less money than if you purchased the hardware outright. Compliance is a big issue for companies; it makes sense to lease equipment and turn it in to help ensure you keep your infrastructure and OS current.
The finance people also like options that allow them to use someone else’s money for free. One of the options that IGF offers at times is a 12 month, 0% interest loan. You can spread the cost of your purchase over 12 months or 9 months with a deferral. The business can keep their money working for them longer and new equipment that offers them a competitive advantage. It’s a win-win.
How Does this Help Me in 2020?
Lots of budgets are uncertain today. One of the options you have with an IGF lease is payment deferrals. You can get up to 90 days of deferred payments. This is an excellent option for companies who want to get new hardware before their budget is available. If you have an E4D, for example, and you know you will replace it in Q1, you could recommend a lease with a deferral. If you purchase in December, your first lease payment would be due in March 2021.
When you defer the payments, you will pay a higher monthly payment to cover the 90 days or extend the lease term. The current offer is what IGF refers to as a 3+33 FMV. This is the deferral for three months, with the cost spread out over the remaining 33 months.
More Companies are Taking Advantage of Leasing
We usually include estimated lease payments from IBM Global Financing when selling IBM Power Systems and Storage solutions. Companies who never considered leasing before are considering it now because it makes financial sense. Companies concerned about the future can get out from under their old infrastructure and take advantage of the performance, availability, and security enhancements available with POWER9 and IBM i 7.4. Budgeting becomes easier, and you can spread the cost out over time.