By: GreatAmerica on November 25th, 2018
How is Hardware as a Rental (HaaR®) Different from a Lease and Hardware as a Service (HaaS)?
Hardware as a Service (HaaS) vs. Hardware as a Rental® (HaaR®) vs. Lease
We like to say that the GreatAmerica Hardware as a Rental (or HaaR) solution combines the best attributes of Hardware as a Service (or HaaS) and leasing. Managed Service Providers (MSPs) and Solution Providers are able to present their clients with an all-inclusive monthly subscription payment, without hurting their cash flow. At its core, HaaR is an equipment rental agreement with HaaS-like features.
There are ways HaaR is both similar to, and different from, HaaS and a traditional lease. MSPs and Solution Providers will want to evaluate each of these closely before deciding which method is best for their go-to-market with monthly payments.
How is Hardware as a Rental (HaaR) similar to a lease?
HaaR Agreements Have a Fixed Term
Like a lease, a HaaR agreement is a fixed term. You can choose your term based on the equipment you are offering and their typical lifecycle. For example, if your technology solution primarily has desktops and laptops, you might choose a 36 month (or 3 year) agreement. However, in an agreement with more servers and storage you might choose a longer term, like 48 or 60 months.
HaaR Agreements are Non-cancelable
A Hardware as a Rental agreement is also non-cancelable. What does that mean? When your client signs the Hardware as a Rental document, they are agreeing to make monthly payments for the stated term. If they decide they don’t like the equipment, or even if they want to fire you, they can’t just stop paying or cancel the contract. MSPs and Solution Providers who currently sell HaaR in their business say this makes their managed services and clients stickier too.
The Managed Service Providers and Solution Providers Get Paid Upfront on HaaR Deals
When it comes to leasing, Managed Service Providers and Solution Providers like that they get paid on the project upfront without having the chase the client down for a check or use their own cash to fund the deal. With HaaR deals, GreatAmerica pays you the full amount at the beginning of the deal. This makes a lot more sense to many MSPs and Solution Providers when it comes to their cash flow.
How is Hardware as a Rental (HaaR) different from a lease?
While Hardware as a Rental and leasing are similar, there are two main ways Hardware as a Rental is not like a lease.
HaaR Agreements Do Not Have Purchase Options
With a traditional lease, the client typically has options at the end of the agreement to purchase or gain ownership of the agreement. Your customers have a couple options at the end of the stated term with a HaaR agreement: keep renting the equipment, return the equipment, or upgrade their equipment. The upgrade option is a big bonus if your managed service efficiencies rely on your clients having updated equipment.
You Can Sell a Bundled Payment with HaaR Agreements
Unlike a traditional lease, Hardware as a Rental agreements allow you to bundle your recurring managed services charges with the monthly equipment rental payment. We bundle these charges a number of ways depending on the MSP or Solution Provider, but most commonly there is a single monthly payment that includes the equipment, installation, professional services and recurring services. How is Hardware as a Rental (HaaR) similar to Hardware as a Service (HaaS)?
How is Hardware as a Rental (HaaR) similar to Hardware as a Service (HaaS)?
Now that you understand the similarities and differences between Hardware as a Rental and traditional leases, let’s compare and contrast HaaR to Hardware as a Service (HaaS). First, there are a few critical elements of Hardware as a Service that Managed Service Providers and Solution Providers doing HaaR get as well.
Hardware as a Rental is a Total Solution
MSPs and Solutions Providers who sell both HaaR and HaaS present the customer with a total solution. The customer feels like they are getting a hassle-free IT solution where they won’t get nickel-and-dimed along the way. For example, they won’t have to worry that the MSP will be back in a few months when Windows 7 support is ended and ask for a large chunk of change to replace servers and desktops.
The Customer Only Gets One Invoice in HaaR and HaaS Deals
Just like with Hardware as a Service, the customer gets a total solution and they only have to remember to pay one invoice in a Hardware as a Rental agreement. That invoice includes the monthly payment for the equipment rental and professional services as well as your managed services recurring monthly fees.
Hardware as a Rental Requires No Up-Front Capital Expense By Your Client
Many of your clients are looking for technology solutions as operating expenses. Why? Many times it isn’t even for tax purposes* like you might think. Really, it’s because it is easier to budget and there aren’t large outlays of cash hitting the books every few years.
How is Hardware as a Rental (HaaR) different from Hardware as a Service (HaaS)?
At the same time, there are several critical ways HaaR is different from HaaS. These are primarily who takes on the financial risk as well as how and when the Managed Service Provider is paid.
GreatAmerica Takes More of the Financial Risk on HaaR Deals
Similar to the way leases are structured, GreatAmerica is underwriting the credit based on the client. That means we make the decision whether or not to finance the transaction using information on your client’s business credit. For example, if the client stops paying because they went out of business, the risk and responsibility is on GreatAmerica and we will take the loss, not you. Most MSPs and Solution Providers with a HaaS model are taking on the financial risk of each of their clients. Therefore, they could take a major loss if a client stops paying or goes out of business.
Managed Service Providers Selling HaaR are Cash-Flow Positive from Day One
With traditional Hardware as Service, MSPs and Solution Providers are either using their cash or a bank line in order to purchase the hardware and perform labor on the installation. They are typically made whole somewhere between 6 and 18 months into the transaction. This can put a huge strain on your operating cash. Especially if you are good at sales. Then it is just a matter of time before your cash runs out or your bank lines are maxed out.
In this article, we break down the pros and cons of using a third party leasing company versus using your own cash to finance customer purchases: Partnering with Third Party Leasing Company vs Using Cash to Finance Technology Solutions.
GreatAmerica Sends the Invoices on HaaR Agreements
On Hardware as a Rental agreements, GreatAmerica does the billing and collecting. That means every month we send an invoice to the client that includes the hardware and project costs as well as your monthly recurring managed services fees. Then, when the client pays GreatAmerica, we will deposit the recurring charges into your account. (Note: We do not charge a fee for this pass-through service for the term of the agreement.)
Although this is unlike a HaaS transaction where you are billing and collecting, it does remove the administrative burden. Also, our integrations with ConnectWise Manage and ConnectBooster make it super simple to track customers’ payments and auto-post themto your accounting platform. If you’re worried about handing over your billing to another company, you shouldn’t be! Our partners trust us to the tune of a quarter of a billion dollars so far in 2018.
The Comparison Matrix of Hardware as a Rental, Hardware as a Service and Leasing
To make all of this super simple, here are a few tables that summarize how each HaaS, HaaR and leasing compare to each other.
How HaaR is Similar to a Lease
How HaaR is Different from a Lease
How HaaR is Similar to HaaS
How HaaR is Different From HaaS
*NOTE: This article is for informational purposes only. It is not intended as, nor does it constitute, accounting or tax advice. You should contact your own accounting and tax advisors to determine how the subject of this article applies to your business and your transactions with customers.
GreatAmerica is the largest independent, family-owned national commercial equipment finance company in the U.S. and is dedicated to helping manufacturers, vendors, and dealers be more successful and keep their customers for a lifetime. A $2.4 Billion company, GreatAmerica was established in Cedar Rapids, Iowa in 1992 and has a staff of over 600 employees with offices in Iowa, Georgia, Minnesota, and Illinois. In addition to financing, GreatAmerica offers innovative non-financial services to help our customers grow. www.greatamerica.com