A closer look at equipment leasing trends and we can see that 2014 began on an optimistic note for equipment financiers in general and lessors in particular.
All economic predictions pointed to equipment uptake spiking owing to pent up demand from slow economic recovery. This has largely been the case especially for construction, transportation and agricultural sectors with other sectors such as computing and software, medical and industrial feted to attain above normal growth.
Last year, investments in manufacturing and construction equipment leases alone accounted for 20 percent of all the equipment acquisitions in the States according to industry experts. Further rebound in energy, housing and farming sectors will undoubtedly increase equipment leasing in these areas buoyed by low interest rates especially for short term arrangements. However, it is not all rosy in this industry.
Challenges In The Industry
The equipment leasing industry is one that is always under constant from various economic, legislative, competitive and other market driven forces. Even at time when lessors seem to be having a good year, uncertainty pervades the investment aura owing to a combination of the following factors:
Difficulty Accessing Funds.
Players in the top tier category rarely have this problem. Well diversified companies easily obtain funding because of the diversified nature of their businesses. Banks with leasing subsidiaries are the most safe as they are guaranteed by the capital and asset base of parent company. Many players, however, do struggle to acquire funding.Small to medium leasing company who enter the leasing market sporadically with no chance to make a name, if ever, don’t achieve critical support of the investment community. This is the proverbial, size does indeed matter.
E-commerce And Other Novel Delivery Channels.
The internet revolution did create a lot of business furor. Nonetheless, the internet as a business delivery channel is just illustrious. Even with the illusion of reaching targets, it rarely translates into revenue. The customer is near yet far. The internet is here to stay but rarely as a revenue collection point but rather a platform to increase business efficiency, eliminating all the required paperwork.
This indeed not only applies to equipment licensing but other industries as well. Come to think of it, many expenses and requirement eating into leasing company profits. One such area is the growth in employees. Many good employees make innumerable demands to employers while the others still require a fast-track program. Factor in tax constraints in a fast changing legislative environment and employer budgets are getting thinned out.
Continued Entries And Consolidations.
Due to earlier waxing profits of the equipment leasing industries, there has been numerous entries of lessors. The competition drove the prices downwards as well as improved service to prospective lessees. However, with increased difficulty surviving in the market, many lessors have merged including the larger ones. When large lenders merge, the pool of finances available for lending invariably shrinks. Further, this reintroduces competitive control of the few large lenders remaining in the market to the detriment of potential lessees.
Ensuring Continued Success
Despite myriad of challenges in the operating environment, the operating environment for lessors has always been dynamic. The major factors affecting this industry include human resources, credit quality, regulations, staffing, the internet, delivery channels and funding sources among others. Profits for equipment leasing companies has always soared, though much still needs to be done.
Consequently, the three main items that should define continued success for equipment leasing companies are becoming flexible, embracing technology and most importantly having to set company specific tactics and strategies. Flexibility is non-negotiable in the wake of fast changing business dynamics. Recently, financial reporting legislation have imposed stricter legislation on leasing companies regarding aspects of lease accounting reducing their profits even further.
Technology has become a major player in almost all business aspects. However, technology must be used warily. For example, where there are equipment leasing contract that can be even done online, it is highly unlikely that the high value transaction will be done on the same platform. As for the large institutional lessors, understanding the consumer market and target requirements is a major issue. Take for example bank backed lessors. They would fare poorly to a small or medium medical equipment lessor or financier who not only provides technical advice but also understands the market.
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