Need to get more bang for your buck?
“Industry performance continues to show solid growth. Despite higher interest rates, continued supply chain disruptions, and higher inflation, the equipment finance industry continues to deliver value to businesses who rely on it to acquire necessary capital equipment to run their operations. Equipment finance providers leverage a positive credit environment and abundant liquidity to help these businesses grow and prosper.” According to Equipment Lease & Finance Association President and CEO Ralph Petta (8/23/22).
Even though this statement was issued prior to the Federal Reserve announcement of the third rate hike since June, there is still a need for funding to finance capital equipment. There are also good reasons to consider a lease to acquire necessary assets despite this economic environment, as cited in the Journal of Equipment Lease Financing, Summer 2022:
- Cost Stability.
- Increased demand for real assets
- Tax Advantages for Operating Leases
As a hedge against inflation, business owners can lock in the monthly payment before pending rate hikes. This allows for easier budgeting for business owners as a lease will provide cost stability in a volatile market that is subject to price increases. The last two years have been rife with uncertainty thanks to the pandemic, recession fears, and now rising inflation. One caveat: Check the lease contract for surprise fees and onerous return conditions or renewal clauses. https://www.clune.net/the-clune-difference.php
Physical assets, such as capital equipment, tend to hold their value better during inflationary periods. Additionally, the products that are generated by the equipment will typically rise with inflation. Financing equipment will also preserve your capital for other purposes such as payroll and emergency expenses.
Finally, according to this article, there are tax accounting advantages:
“Aside from reducing uncertainty, new accounting changes favor leasing in the lease-versus-buy debate. As is well known, ASC 842, FASB’s new lease accounting standard, brings most operating leases onto firms’ balance sheets, whereas they used to exist as off balance-sheet. This in turn will help support measures of profitability, cost of capital, and other financial performance metrics.” As always, we recommend you verify this with your tax advisor.
In conclusion, “Borrowers and lessees value certainty in uncertain times, and equipment finance firms will continue to provide access to financing products that help reduce uncertainty.”
It is the “lease” we can do,
Kevin F. Clune, CLFP
Clune & Company; A Division of Landmark Financial Corporation
