Businesses are ramping up to meet increasing demand and market opportunities in response to continued signs of some 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 9 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 March 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 February 2011 was up 28 percent over the same period last year.
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.