When it comes to business financing, funds ain't what they used to be, says Jeff Bailey. So it can pay to get elements of your technology expenditure off the balance sheet and into an opex-based payment structure...

Time: the early eighties. Place: the UK. Cash is King; gateway to the stars; definitive door opener and palm greaser; chief lubricant in oiling the wheels of life.

But then - driven by the already legendary Iron Lady and her steely determination to remove the UK's historic economic shackles once and for all - Margaret Thatcher's 3-year old Tory government decides to relax the rules governing credit.

The marketplace is suddenly awash with flexible friendliness; with cards we mustn't leave home without and that will do nicely, sir. The king is dead. Long live the king. The effect is dramatic. Companies no longer had to go cap in hand to plead for a few measly crumbs from their banks' substantial oak tables when they wanted to invest or expand; here was a fresh beginning - a vibrant new breed of finance in which the needs of the customer came first for a change, and where old problems could be solved with a range of new and innovative solutions. It was great...

But hang on a sec. There's something familiar here. Brave new world? Innovation? New solutions to old problems? Sounds suspiciously like the pitch for another industry that was enjoying its first flush of success in the early 1980s. Sounds a lot like Technology in fact.

Indeed, so close are the parallels between the relative evolutions of IT and finance, that the only thing that outstrips the array of technologies now available to the average business is the massive range of financial options via which it can pay for them.

All of which leads us neatly to the inevitable "But". Specifically the one that asks whether leasing is still a good idea given that UK consumers and businesses are in greater collective debt than at any time in history, and that the UK economy appears to be teetering on the brink of credit meltdown.

There's certainly a deal of discussion in the press about the availability and sustainability of personal and corporate finance, with many commentators voicing concerns about the medium term viability of business funding.

But while the dynamics have undoubtedly shifted a great deal in both the IT and finance camps over the last quarter of a century, one crucial factor hasn't so much changed, as simply evolved: where cash once ruled, now cash-flow is king. And for this reason alone, any credit instrument that can keep a business's expenditure on target and off the balance sheet will hold as great an appeal now as it ever did.

First, you never actually own the solution, so it doesn't have to be treated as a depreciating asset, with all the complexities that that brings. Secondly, because you're effectively renting the kit rather than buying it, it's usually possible to claim tax relief against the payments. There's also the option of including maintenance in your monthly or quarterly payments - which makes budget management easier too.

Another benefit is that leasing arrangements - by their very nature - last for a fixed, pre-defined period, which means you don't end up getting stuck with ageing or
obsolete kit or, worse, software - where the need to remain current is even more crucial.
And don't worry if your particular financial dilemma is an unusual one with no immediate or obvious solution; one's bound to come along at any minute. Bespoke schemes are emerging all the time that allow companies to tailor their finance to their particular needs and models.

So we should all be abandoning traditional IT purchase models and shifting to leasing then? Well, no.
Not necessarily. Taking a rigid, one-size-fits-all approach is rarely a prudent idea in business, and finance is no exception. It's much more often a good old fashioned case of horses for courses, says Ian Medlock, Managing Director of IP communications specialists, Mainstream Digital.

"As a company that relies on cutting edge technology, we need to invest heavily on an ongoing basis to ensure our customers have the latest reliable solutions", he explains. "When it comes to hardware, we find the best solution is leasing, because it's off balance sheet. However, our new VoIP platform was designed in-house and we funded it from our own reserves because we needed to move quickly".

Overall then, Medlock's view of leasing is a measured one. "Quite clearly, the benefits to cashflow when leasing hardware are straightforward for a limited company; low up-front outlay, followed by balanced monthly payments that may be tax-deductible, is an attractive proposition. The area where I am less convinced concerns (areas such as) software development. If you're buying off the shelf solutions, then fine; but if, like us, you're doing it in-house, finding the right type of finance deal can be difficult."

It's an important consideration, particularly given the speed and insistence with which emerging IT payment models such as Software as a Service are gaining ground and marketshare over pr�t-a-porter style solutions. But how do you decide whether leasing is or isn't appropriate? And when?

First, before weighing up any specific financing instruments, it's a good idea to take a good look at the nature of your own operation against its financial needs, and think about exactly where and how leasing might help. For instance, because leasing is classed as a service, the payments are subject to VAT. That's fine if you're VAT registered, but not so clever if you're a small business or an individual without that luxury.

In short, whatever your business, it pays to have an expert (your accountant for example) look over the implications. And there are plenty of them, says Russell Leighton, VP of Finance EMEA at Insight.

"Trying to source specialist IT finance can be a complicated task that's made all the more difficult by the fact that there is a lack of transparent advice and information", he argues. "Unsurprisingly, because of this, many organisations are falling foul of hidden costs and pitfalls and may not be getting the best deals possible".

As such, says Leighton, businesses should make wising up on their finance options a priority.

"Research underscores the financial imperatives for looking at alternative ways of sourcing technology finance, such as letting finance providers bid for your businesses online. It's about time businesses took back control and turned IT financing into a borrowers' market".

Business software provider Sage is among the growing number of technology vendors that are recognising and embracing the need for such specialist funding. It has recently created a range of finance plans for the supply of its solutions. Designed and managed by independent IT finance and leasing provider, Syscap, the idea is to kill several birds with a single stone by helping Sage's Business Partners overcome their customers' budgetary or cash constraints. The intended outcome is that Sage writes more business, as do its partners, and the customer gets the solution they need immediately for a manageable monthly fee.

Such thinking sounds worryingly like common sense, but Philip White, Chief Executive Officer at Syscap, says such tactics are merely a reflection of the kind of solutions now being demanded by the marketplace; arguing that Sage's plans demonstrate the kind of seamless approach to sales, finance, licensing and particularly payment that users now want.

Like it or not however, there's little doubt that the effects of ongoing credit crunch are being felt increasingly acutely in some quarters of UK Plc. According to many commentators, a degree of nervousness among several of the key lenders is already putting paid to some of the industry's more adventurous, out-on-a-limb finance schemes (and even a few of the outwardly more conservative ones). But for now most of this pressure looks to be concentrated on the more at immature companies and on those with poorer credit histories.

The consensus is though, that thanks to the asset-based nature of most technology funding, a well-run company shouldn't have a problem in securing good leasing deals going forward.
In other words, Northern Rock notwithstanding, cash is probably best kept in the bank. Of all people, Englebert Humperdinck probably put it best. "Please re-lease me", said Englebert. And he was probably right.