Business software leasing and technology financing in general often seem like ‘ uncharted territory’ when it comes to Canadian business financing. The truth is there are some striking differences in tech finance, and, as our lawyer would say ‘ on the other hand’ there are quite a number of similarities. Let’s dig in.
Don’t think that because software is an ‘ intangible asset ‘ that it can’t be financed. One study by top experts revealed that over 1/3 of business owners have never considered this method of financing technology. The reality is that Canadian business owners, from small business to our largest corporations have been financing software and tech assets for 20-30 years. While the lease and financing documents are essentially the same it’s important to understand certain elements that are specifically related to the tech world.
Part of the confusion around software financing revolves around the simple fact that you’re licensing, or using software, your firm doesnt own it per se. Given that most computer hardware is really a commodity these days the actual value of application software is much more significant.
From the lessors point of view they disclaim the warranty in the software and hardware they finance, that’s between you and your vendor.
And the bare facts are simply that as long as you are making payments under your lease you have the right to use the software in a nonexclusive manner. Most software lease financing in Canada is done under a capital, or ‘ lease to own’ document.
We can get really technical and also offer up the fact that when you are financing / leasing software you don’t own the IP (Intellectual property) around the software in question – you can use it, but you can’t resell it! Today Canadian lessors also register their interest in the same manner that they register any lease document.
We’ve already said that a strong case can be made for software being more valuable than hardware, as it most cases its running your business and providing you with a competitive edge. These days it runs a company financials, manages customers, controls inventories, etc. That’s why it makes sense to consider leasing/financing this valuable asset to your business.
For credit worthy companies all software can be financed, so that is all the way from MS Word to aircraft scheduling systems. It’s a fundamental concept of lease financing that you should match the cash outflow of a purchase with the benefits. Since the useful life of the software will often be several years it makes sense to consider a 2-5 year lease term for tech financing scenarios.
Custom software in general cannot be leased or financed, except when there is investment grade credit quality backing up the transaction. But in Canada the lease finance industry has embraced software financing , so whether your finance need is 5k or 5 Million $ consider such a strategy. And if by chance you’re a software company you should definitely consider offering customized financing to your client base.
It’s no secret that more and more everyday we’re living in a knowledge economy, so don’t forget the financing opportunities your firm has in financing hardware, software and other services to achieve your competitive position in your industry.
Seek out and speak to a trusted, credible and experienced Canadian business financing with a track record of success in tech financing. The bottom line, these days its’ mission critical’!
Originating business financing for Canadian companies , specializing in working capital, cash flow, asset based financing . In business 10 years – has completed in excess of 80 Million $$ of financing for Canadian corporations .
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