Modern equipment leasing trends have changed the way people do business. Here’s a look at what has changed since back in the day.
Since the amateur hire purchase days to the modern leasing agreements, most businesses have come to the realization that equipment leasing has a myriad of advantages. Apart from not having to tie up company capital, the company improves its cash flow position through flexible lease rentals and can keep at pace with fast evolving technological equipment. Most financier and business analysts had already predicted more than industry average growth for companies that will use equipment leasing rather than the traditional financing arrangement.
Most reputable analysts had, earlier in the year, predicted meteoric rise in agricultural equipment leasing following favorable tax legislation and the overall credit environment in US for 2014. However, financing will still remain with an edge over leasing given that interest rates for long term loans will rise while that for short term financing falls. The effect is that though most businesses will use financing to acquire equipment, they will prefer a short term credit or loan arrangements with a financier. As manufacturing and software deals will lead the pack in equipment financing, the awakening confidence in the housing sector will increase the need for equipment leasing in trucking, building and most importantly short to medium term constructions.
Modern Equipment Leasing Trends Are Now Noticeable
A Contraction In Investment In Most Sectors
With the optimism that followed the countrywide drought, equipment financing in agriculture was predicted to record above average growth in equipment leasing due to the impressive cash flows and optimistic financing. However, in the first quarter of the year, agricultural equipment financing has actually recorded a drop in uptake. Other sectors that have likewise registered a contraction include the software and computing industry, industrial investments and medical sector though industrial investments are already waking up. The most impressive growth in equipment leasing has been in the construction industry largely due to the housing recovery with equipment leasing in the transport sector such as truck leases barely recording above normal growth.
Favorable Credit Market Environment To Stimulate Continued Growth
What this means is that most of equipment acquisition deals will be done in the second half of 2014. Companies are still wary of making investments because the fiscal environment only favors short term borrowers. Most of equipment leases are in industrial and construction sectors which command huge investments. Certainly, the sizes of these investments alone dictate that the investors must wait for the wave of investment uncertainty to vanish before making large capital equipment leases.
Rising And Unmet Demands Driving Equipment Acquisitions
Following the slow recovery after the housing crisis, a state of normalcy is already being felt and the housing sector investments are rising to meet these demands. Other sensitive sectors such as the agricultural investments and transportation will still register increased equipment leasing in the second half of 2014 due to replacement cycle. That is to say most investors in these sectors are not entering into equipment financing deals pending favorable condition later on as equipment need continues to pile.
Majority Of Businesses Resorting To Equipment Financing
The tough fiscal environments experienced in the prior years alone has pushed companies to conserve cash and what a better way to do this other than through equipment financing. In 2013, approximately $740 billion of expected $.5 trillion investments in software, equipment and plant were acquired through credit lines, bank loans and most importantly leases. This is according to Equipment Finance Advantage, equipment leasing analysts. This was just close to the fifty percent mark. This year alone, it has been predicted that even at the same yearly rate attained so far, approximately 8 out of 10 businesses will use equipment financing of which four will be leases.
Large Business Still The Big Winners In Equipment Leasing
One factor that has propelled uptake of equipment financing is the depreciation bonus that was offered by the government. Initially set at 50 percent, many businesses rushed to equipment acquisition due to the tax savings. However, small businesses still find it hard to make good use of it given that equipment financing comes at a greater cost for small companies rather than then large ones. Apart from being able to meet lease rentals without adversely affecting their cash flow position, lessors and lenders alike prefer big companies due to lower risk of default.
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