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
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.