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ManageMent
www.us-tech.com Equipment Financing: The Manufacturer’s Best Option By William G. Sutton, CAE, President and CEO, Equipment Leasing and Finance Association, Washington, DC
vantage of special incentives lenders and captive vendors may offer. There is typically a flurry of capital spend- ing as the calendar year winds down, because companies want to get the expenditure squeezed into the expir- ing fiscal year. While year-end deals are often available, it’s important to keep financing in mind for acquiring the equipment for manufacturing needs regardless of the time of year. From commercial banks to manufac- turers to smaller, more specialized commercial finance companies, a va- riety of options can be found. The key is determining the business’s needs and selecting financing that will best address those needs.
M
The Push Behind Deals There is typically a push by
leasing and finance companies to close transactions every December, mainly to take advantage of any tax benefits during that fiscal year. As a
any businesses give addition- al consideration to equip - ment financing to take ad-
result, the Monthly Leasing and Fi- nance Index (MLFI) issued by the Equipment Leasing and Finance As- sociation (ELFA) traditionally shows new business volume spiking in De- cember. When tax benefits for equip- ment leasing and finance companies exist, there should be an added in- centive for them to offer better deals to customers. For company managers, the
push to complete equipment financ- ing transactions by year-end may stem from a couple of scenarios. One is the ability to leverage the year’s unused operating funds to secure better terms or larger deals with fi- nancing companies who are eager to get deals done. Another is the need to maximize the allocated budget, to “use it or lose it”, so it’s not reab- sorbed back to the company and pos- sibly cut from the following year’s budget. In either case, it is recommend-
ed that businesses consult with their accounting advisors to ensure they are getting the right equipment with
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the best possible terms, and at the right time.
Financing Advantages Given growing equipment de-
mand amid ongoing economic uncer- tainty, many businesses find that equipment financing is a key acqui- sition strategy. The current market shows equipment financing is as vi- tal and available as ever, enabling businesses to secure the assets they need while achieving their opera- tional and financial objectives. A closer look at 10 key benefits of equipment financing will show clearly that there’s no need to wait until the end of the year to acquire equipment.
Flexible Financial Solutions. The types of financing solutions equip- ment finance companies offer —espe- cially leases — are flexible and can be tailored to specific accounting, tax or cash flow needs.
Capital Preservation. Financing versus spending cash, and particu- larly the type of financing employed (lease vs. loan) can help mitigate the uncertainty of investing in a capital asset that may not yield the desired return or increase in efficiency, cost savings or future sales.
Improved Expense Planning. Maintaining cash flow and consistent budgeting is another benefit of equip- ment financing. Instead of consider- able capital outlays resulting in huge budget fluctuations, financing en- ables even expense planning.
Business Cycle Flexibility. Some types of leases allow for seasonal business fluctuations, lower monthly payments while a project is ramping up and revenue is not yet being gen- erated from the equipment, and oth- er specific circumstances.
Up-to-Date Technology. Many businesses cannot afford to buy out- right the equipment they need to be competitive and thrive. With term fi- nancing, they are often able to ac- quire more and better equipment that may have been out of their reach if they only considered buying it.
Equipment Expertise. Many equipment finance companies are equipment experts and offer equip- ment specialties which other sources of finance do not. Equipment finan- ciers have special relationships with manufacturers and distributors, spe- cializing in certain equipment types or industry categories.
Managed Obsolescence. The risk of owning obsolete equipment is eliminated if lease financing is used for the acquisition, since many agreements allow for easy, fast equipment updates. Most equip-
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ment finance companies, in partner- ship with their vendors, will work with business customers to “right size” the equipment.
Dependable Asset Management. Asset management is a key benefit of many forms of equipment finance, ensuring equipment in operation is- n’t under-utilized or over-utilized. A good asset management program tracks equipment throughout its life cycle from delivery to installation, use, maintenance, and finally de-in- stallation and disposition.
Equipment Disposal. Most busi- nesses don’t have the resources or knowledge to efficiently manage and sell their old equipment. You may es- sentially outsource the equipment management function so the financ- ing company can handle its disposal or resale when it’s time to retire the asset.
The current market
shows equipment financing is as vital and available as ever, enabling businesses to secure the assets they need while achieving their operational and financial objectives.
Reduced Risk. Equipment purchas- es involve risk to the owner, from equipment expertise to capital out- lays, from asset management to ob- solescence. Financing removes many unnecessary risks allowing the com- pany to focus on its business.
The website listed at the end of
this article offers more detailed infor- mation about leveraging equipment financing in any manufacturing com- pany’s business strategy. It will show the range of resources available, and includes informational videos, the various types of financing, a glossary of terms, a lease vs. loan comparison and questions to ask when financing equipment. The Equipment Leasing and Fi-
nance Association is the trade associ- ation that represents companies in the $628 billion equipment finance sector, which includes financial serv- ices companies and companies en- gaged in financing capital goods that they manufacture. ELFA has been equipping business for success for
more than 50 years. Contact: Equipment Leasing
and Finance Association, 1825 K Street NW, Suite 900, Washington, DC 20006 % 202-238-3400 fax: 202-238-3401 Web:
www.ELFAOnline.org or www.EquipmentFinanceAdvan-
tage.org r
February, 2013
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