Creative Lease Financing for Capacity On-Demand Computing

Every IT lessor uses the following adjectives to describe their leases: “creative”, “innovative”, “customized” and “flexible”. Perhaps nothing tests these claims more than the Capacity on Demand (“CoD”) computing model. This is where customers pay for compute/storage capacity incrementally based on day-to-day, or even hour-to-hour, needs. This eliminates unutilized IT resources and staff, which means considerable savings and a more sensible approach to project planning. Very large IT capital expenditures can be avoided altogether, which is particularly valuable for start-ups who have limited lines of credit or for other kinds of businesses operating in risky business climates (e.g., airlines).

CoD computing is here to stay and, increasingly, our customers are requesting financing terms to support this paradigm. The popularity of CoD computing ranges across different industry verticals, such as Application Service Providers (ASPs) and Financial Services, and businesses of all sizes, from Fortune 1000 enterprises to small-to-medium businesses (SMB). ASPs, for example, are requesting flexible lease financing terms and conditions that are congruent with a “pay-as-you-grow” IT philosophy. ASPs also add another challenge to lease finance structuring: meeting the needs for rapid IT growth and unpredictable spikes in demand for IT resources. Just to survive, Wall Street firms must be agile and responsive to unknown “market events” or other global externalities. Other large enterprises find that they must provide rapid provisioning and scalability of IT resources all around the world in order to serve their customers best. SMB customers want to focus on their core, strategic lines of business where they are most competent, and this does not typically include IT. Finally, the uncertain nature of smaller, start-up businesses lends itself well to CoD computing since IT investment risks are mitigated.

Verari Financial Services (VFS) can meet all the new financial challenges posed by CoD computing. Just recently, we proposed a lease financing solution to a premiere ASP that operates multiple data centers in the United States and the United Kingdom. We were able to craft a lease based on their current capacity utilization rate and add capacity incrementally based on their monthly growth projections over a four-year term. VFS leasing was structured granularly so that different kinds of Verari equipment could be added easily to their install base as needed. VFS provided the option to reconfigure hardware components (e.g., memory) within Verari BladeRack 2s as applications change in the future - a huge convenience. Over the next two-to-three years, VFS will provide trade-in credit for older racks so that our customer will be able to refresh (upgrade) to the most energy efficient, densest BladeRack 2 X-Series solution available - an added cost savings! During the technology refresh process, VFS will assume all asset disposition risk by accommodating safe/secure removal of older equipment, and our lease will include professional installation/de-installation services.

I think what our customer appreciated most, though, was that VFS granted credit approval for lease financing in spite of their highly leveraged financial position and today’s difficult credit market. Essentially, VFS made a thoughtful business decision to help underwrite our customer’s business risk since we’re confident that the future is bright for this ASP, and we want to be their trusted, long-term IT and financial partner.