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Equipping business for success in an improving economy
By William G. Sutton, CAE; President, Equipment Leasing and Finance Association
What is equipment finance?

Most businesses require equipment in order to operate and, in many cases, to make money. Each business has to make the best procurement choice based on numerous factors such as cash flow, balance sheet impact and available credit lines.

A business can use equipment finance to acquire equipment, raise capital from owned equipment, and manage its capital structure. Equipment finance offers flexible choices that can work with diverse objectives of most businesses.

Equipment can be financed for virtually every sector of industry. In fact, businesses that finance equipment range from Fortune 100 corporations to one-person operations in a variety of endeavors. Diverse as these companies are, each has this in common: efficient allocation of capital for the employment of plant and equipment. Owning equipment is incidental.

Providers of equipment finance also offer a broad range of capital solutions. To make the best choices of how to finance these capital assets, a business must determine which options best suit its need for capital and capital goods, as well as the optimal financial structure for its business.

Learn more at www.EquipmentFinance101.org   

Businesses are ramping up to meet increasing demand and market opportunities in response to continued signs of economic improvement.  Acquiring equipment to operate and grow is critical, and for smart businesses, equipment financing is a key acquisition strategy.  Equipment financing is tailored to individual business considerations, including that of maintaining cash reserves.

The current market situation finds equipment financing as vital and available as ever, enabling organizations to secure the assets they need.  Equipment financing provides many benefits that fit the operational and financial objectives of businesses, from Fortune 100 corporations to one-person operations.  A deeper understanding of these benefits will enable organizations to strategically leverage equipment financing not only during improving economic conditions, but for any business cycle.

Growing Confidence Creating Demand for Equipment

An improved business outlook provides encouraging evidence for businesses to stop putting off acquiring new equipment or replacing or updating existing equipment.  Promising signs of increasing business confidence, spending and investment include the results of a Duke University/CFO Magazine Global Business Outlook Survey released in December 2010, which shows that chief financial officers in the U.S. are becoming more optimistic about the economic outlook for 2011.  They expect to raise company earnings by 20 percent and increase capital spending by nine percent.

Additionally, nearly one-third of small business owners said that as of the start of 2011 economic conditions for their businesses are getting better, according to Discover Small Business Watch.  Thirty percent—the highest percentage since March 2008—said they will increase spending on business development, including capital expenditures.    

Increasing optimism prevails in equipment finance as well.  The Monthly Confidence Index for the Equipment Finance Industry, which reports a qualitative assessment of prevailing business conditions and future expectations, reached its highest level in January 2011 since the index originated in May 2009.  The Equipment Leasing and Finance Association’s (ELFA) Monthly Leasing and Finance Index, which reports economic activity for the $521 billion equipment finance sector, also showed new business volume for the fourth quarter of 2010 was up more than 20 percent over the fourth quarter of 2009.

Benefits of Equipment Financing In Uncertain Conditions

Despite the tangible gains businesses are experiencing, economic recovery is being hampered by unemployment, the housing market slump and durable goods data, among other issues.  The Duke/CFO Survey noted CFOs are concerned about consumer demand, pressure on profit margins and the difficulty of planning during uncertain economic times, with half of CFOs planning to hold onto cash.  These are conditions that are well suited for equipment financing, since it:

•     enables expense planning

•     maintains cash flow

•     preserves capital

•     requires no down payment

•     can provide 100 percent financing. 

The flexibility of equipment financing, especially leases, is another key benefit that can enable customized solutions for a business’s accounting, tax or cash flow needs.  Leases are available that allow for seasonal business fluctuations, lower monthly payments while a project is ramping up and the equipment is not yet generating revenue, and other specific circumstances a business may experience.

Availability of Credit

Access to credit is one of the many benefits equipment financing provides in a restricted credit environment. The Duke/CFO Survey reported that credit conditions are somewhat improved over a year ago, but among small firms, credit still remains tight.  Credit approvals in the equipment finance industry are historically higher than those for bank loans, and have been improving steadily, according to data from the ELFA.  The role of the equipment finance industry in providing credit to businesses has wider economic impact, since in a typical recovery most job growth is generated by small firms. 


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