Rising confidence is sparking a rise in equipment investment. Leasing may be one way to keep your company’s growth goals on track.
Leasing the equipment your business needs can be a strategy for managing your company’s cash flow and reserving its liquid assets for other areas of investment designed to hit your expansion and growth targets. To make the most of this resource, you need to understand current funding options and trends so that you can determine why and when leasing makes sense for your small business.
According to a forecast by the Equipment Leasing and Financing Association, “U.S. businesses, nonprofits and government agencies will spend nearly $1.5 trillion in capital goods or fixed business investment (including software) this year.” That figure represents an all-time high, and the majority of those assets will be acquired through financing, ELFA predicts. The association adds that this uptick in activity will reflect companies’ moves not only to replace older equipment, but to “aid in expansion” as “capacity utilization rates in some industries reach or surpass levels historically known to spur business investment.”
A more competitive cash flow strategy
William G. Sutton, CAE, ELFA’s President and CEO, notes that leasing can be particularly beneficial for you as a small business owner if your funding options for large purchases are limited. “The ability to make monthly payments, rather than large cash outlays up front, is a key benefit that can help small businesses maintain cash flow and greater certainty in budgeting,” he says. “One of many benefits is that small businesses can often acquire more and better equipment than they could have without financing—including the latest technology to remain competitive and meet their clients’ needs.”
In the short term, this approach can leave your cash reserves available to invest in research and development, marketing, and increased staffing or outsourcing that may be required to optimize your expansion and growth.
A secondary and longer-term advantage is that leasing can help you to strengthen your company’s credit position and establish the credit record that you’ll need to borrow for future growth. This can be particularly valuable if you’re a sole proprietor or owner of very small companies and are still in the process of building a credit history for the business that is independent of your personal credit record.
More trends to watch this year
ELFA is monitoring ten major equipment leasing trends for 2015. Visit ELFA’s Equipment Financing Advantage website to access an article and infographic about the top ten equipment acquisition trends of 2015 and its Ten Questions to Ask reference, which is designed to help map your company’s equipment leasing strategy.
Among its forecasts:
• Improving market conditions will continue to increase credit supply and demand for equipment acquisitions.
• Eyes will be on short-term interest rate increases.
• Advances in the use of technology will drive innovative financing options.
In addition, the association is following economic "wild cards" that could have an impact on equipment acquisition decisions. On one hand, it is possible that global economic weakness could spark caution about business investment; on the other, “GDP growth from low oil prices, a potential surge in the housing sector and sufficient capacity utilization could have firms ramping up capital expenditures.”
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