You've heard of equipment leasing and computer leasing. Generally speaking, leasing offers a means of financing 100% of a purchase at fixed rates -- without jeopardizing existing banking relationships. Now a new flavor of leasing is beginning to pop up: software leasing.
Many lenders and computer vendors won't lend for software because of concerns about the value of the collateral should the user run into trouble. Unlike a minicomputer, which can be resold, software is often customized for a particular setting and has little or no resale value. But as the sums spent on software-related items climb (often, they're more than the hardware), specialized lessors are moving in and assuming the risk.
La Mode, a privately held sportswear maker in Los Angeles, for example, is leasing more than $200,000 worth of software over a five-year period. The alternative, says executive vice-president Sherwood Sterling, was to fund it internally or borrow against other, more tangible assets. Since the collateral is so weak, software lessors base their decisions on the credit-worthiness of lessees (the customer's net worth, leverage, interest coverage, and the like). -- Bruce G. Posner
Large software vendors will frequently arrange leases on their own products. Two of the biggest independent software lessors are Software Leasing, in Santa Monica, Calif.; and Meridian Software Funding, in Cypress, Calif.