In order to become a successful business, companies need to have the right equipment. But often that equipment, which can make or break a business, is too pricey. That’s where equipment financing provides the necessary financial support to get a business up and running.
Equipment financing is a $1 trillion industry, and the Equipment Leasing and Financing Association (ELFA) represents more than 575 member companies, who are helping to finance the backbone of the U.S. economy. ELFA President and CEO, Ralph Petta, spoke to RewardExpert about why equipment financing can help a business grow from small to big in no time.
A Critical Piece of the Puzzle
Companies use financing to buy all sorts of equipment. This includes everything from aircraft, trucks and rail cars to medical, manufacturing, office and agricultural equipment.
“In 2018, a projected $1.676 trillion will be invested by U.S. businesses, nonprofits and government agencies in plant, equipment and software. Approximately 63%, or $1.059 trillion of that investment, will be financed through loans, leases and lines of credit,” said Petta.
Big Benefits to Financing
Petta points out that business can reap many benefits to financing equipment that go well beyond the top and bottom line. Benefits include the following:
- Financial flexibility: “The types of financing solutions equipment finance companies offer are flexible and can be tailored to the specific accounting, tax or cash flow needs of a business,” said Petta.
- Improved expense planning: “Instead of considerable capital outlays resulting in huge budget fluctuations, financing enables even expense planning.”
- Flexibility in the business cycle: “Some types of leases allow for seasonal business fluctuations and lower monthly payments while a project is ramping up and revenue is not yet being generated from the equipment and other specific circumstances.”
- Keeping technology and equipment up-to-date.
- Reduced risk and proper equipment usage and disposal.
A Guiding Hand
Once a company decides to secure financing, the myriad of options can make a decision maker’s head spin. That’s where ELFA member companies can help guide the way. “The association’s diverse membership mirrors the diverse makeup of the $1 trillion equipment finance sector,” said Petta. Members include financial services companies, regional banks, independent finance and leasing companies, investment banks and others.
Key Advice
ELFA can provide key advice to get a business moving in the right direction. “In evaluating the options, it is important to look at each alternative to determine which will best to balance usage, cash flow and your financial objectives. To help determine the most appropriate option, it is beneficial to work with an equipment leasing and finance company that understands your particular market,” said Petta.
On its website, ELFA offers a variety of blog posts on the decision-making process, including the ‘10 Questions to Ask’ when considering a loan. “Your equipment financier can serve as a valued consultant, providing additional benefits through lifecycle asset management solutions,” he stated.
Big Things Ahead
With U.S. economic data leading the globe, ELFA members are quite optimistic about the trajectory of the U.S. economy. The Equipment Leasing & Finance Foundation’s Monthly Confidence Index read 64.6 in May 2018, and while that is down from April, any reading above 50 indicates optimism.
In addition, tax reform passed under President Trump is further boosting the bullish mood. “Effects of new tax legislation signed into law late last year—bringing lower corporate tax rates, 100% expensing of new and used equipment, and the ability to continue to deduct business interest expense—are serving to buoy business confidence and contribute to healthy capex levels,” said Petta. He did point out, however, that ELFA is growing a bit more concerned about charge-offs and delinquencies.
To find out how ELFA can help boost your business, check out elfaonline.org.