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Tata Capital > Blog > Equipment Finance > What Is Software Leasing and Why Should You Consider Taking It

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What Is Software Leasing and Why Should You Consider Taking It

What Is Software Leasing and Why Should You Consider Taking It

To improve efficiency and become future-ready, businesses need to invest in appropriate technology. However, not all have the financial capacity for the large investment that software implementation demands. Fortunately, for such instances, business finance offers a viable solution in software leasing.

What is software leasing?

Put simply, a software lease allows extended equipment rentals without investments for a fixed time. In a typical lease contract, the lender (the lessor) finances the software, and the company (the lessee) uses the software. However, the ownership of the software rests with the lender, who in turn, receives small monthly payments from the company for a predefined period.

In this manner, leases offer a way to obtain sophisticated software, especially for small-scale businesses, which may not be affordable otherwise. Nonetheless, the profitability of software acquisition will be solely defined by two factors, namely initial acquisition cost and overall ownership cost. And in case of software leases, both factors turn out profitable. Here is how –

Access to the latest software

Over time, software equipment can become outdated, especially as technology advances rapidly. In such instances, software leases help avoid obsolescence which eventually falls on the lender. Most lease agreements offer flexibility to upgrade the software or include add-on features seamlessly.

Given the heavy reliance on technology today, access to up-to-date equipment can positively affect the efficiency of business operations. As it is, business scalability depends on how efficiently a business can incentivise technological capacity, irrespective of the size. To that end, a software lease allows enterprises to stay ahead of the competition without a massive spend.

Better cash control

Monthly expense for a leased software is fixed yet flexible, which allows for more efficient business finance. Businesses can source best-in-line software and avoid any budget strains. More importantly, lenders typically shoulder the entire maintenance, as well as any associated costs. As a result, there are no disruptions in the cash flow or business credit line.

Besides, software leases offer flexible payment structures, which often allows for easy upgrades. Even the fixed outgo is usually small to help match expenditure to revenue. Also, the total spend on the lease will be distributed widely, making room for cash reserves and efficient budgeting.

Additional Read: 7 Tips for Business Equipment Financing & Leasing

No upfront costs

A software lease usually does not require hefty upfront costs or down payments. As a result, businesses can avail of custom software without any costly hits to the cash flow. Besides, lenders typically do not demand any collateral. They ask to furnish financial statements, business proof, and KYC documents to approve the lease.

Moreover, towards the end of the software lease, businesses also have the option of purchase to take over the equipment ownership. However, in case the software is outmoded, they can buy a new, up-to-date software instead, with no compulsion of purchase. This is the beauty of software leasing.

Additional Read: How to choose an equipment finance company in India?

As for bespoke equipment finance solutions, you can avail the necessary funds from Tata Capital. Enjoy a lease structure crafted specially to suit your cash flow requirements. Get flexible payment terms with minimal documentation for a favourable lease agreement. Request a quote today.

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