If you’ve ever wondered, “Why lease equipment and technology for my business?” our slideshow has the answer. Leasing provides many strategic advantages. Click through this clear, concise presentation to learn more.
In the wake of the financial crisis of 2007-08 and the Great Recession that followed, the Federal Reserve cut interest rates dramatically. Its near-zero interest rate policy—or ZIRP as those in finance have come to call it—was designed to help the economy recover more quickly, and most believe that strategy has been a positive factor in the steady improvement in recent years.
However, in order to maintain a stable economy and cap inflation at 2 percent, the Federal Reserve is expected to raise rates gradually in 2018. In fact, according to the Equipment Leasing & Finance Foundation, the benchmark interest rate will likely be increased three to four times this year. The fact that interest rates inched up in April may be a harbinger of things to come.
Leasing Now is to Your Advantage
The prevailing wisdom is that when interest rates are low, that is the time to grow your business since it is more cost-effective to do so. Consequently, when some companies hear news of impending interest rate hikes, they feel maybe it is time to hold off on acquiring more equipment and other business essentials.
However, there are many reasons why that strategy should not apply in the current situation. For example:
- Versus a traditional bank loan rate, which may change as the benchmark lending rate changes, the payment on an equipment lease is fixed for the length of the agreement. So, by leasing now you are “locking in” your savings as rates climb.
- The Fed is expected to push the benchmark lending rate up by only a quarter of a percentage point per quarter. So, while it is wise to get equipment leased soon, there is still time to carefully assess your needs and make effective leasing decisions.
- The money saved by executing leases now can impact future business planning, cash flow, and profitability. In other words, there are both short-term and long-term benefits to leasing at the current rates.
- While rates are expected to rise, the economy is still predicted to grow significantly for the foreseeable future. Choosing to delay leasing may mean your business fails to capitalize on that growth.
How a Leasing Partner is a Resource in Uncertain Times
A leasing company that is a true partner to your business does more than simply help you lease equipment and software. Especially in times when interest rates are expected to move, it can be crucial to collaborate with a provider that:
- Keeps a close watch on what The Fed is up to in order to anticipate changes and ensure you are well positioned to take advantage of them
- Is prepared to help you adjust your business strategy quickly as conditions warrant
- Maintains an open line of communication with you so that you are comfortable reaching out as your needs or financial position change
At Dynamic Funding, Inc., we serve as a valuable resource for our clients, not only as we work with them to execute leases, but before and after they sign as well. If you have questions about how rate changes this year will affect the equipment leasing market, please contact us.
Most provisions of the new tax law that was passed in December 2017 went into effect on January 1, 2018. Tax law being a complicated subject, it’s not surprising that many small- and medium-sized businesses (SMBs) are still learning about the specifics of the legislation. In fact, according to an industry survey, 50 percent of small business owners are “not familiar” with the tax law and how it affects them. Among its wide-ranging effects is the impact it will have on business equipment leasing.
What You Need to Know About the New Tax Law and Equipment Leasing
It has been much publicized that the new tax law lowers the corporate tax rate from 35 percent to 21 percent. But, few small business owners actually pay corporate taxes. What does benefit LLCs, S corporations, and sole proprietorships in terms of how income is dealt with is a new 20 percent deduction for the taxable income that “passes through” and is taxed as personal income.
However, what may have an even bigger effect on small businesses is how the new tax law impacts the acquisition of assets. If your company is looking to lease computers, furniture, software, and the other assets you need to operate, we see the new tax law (in particular, Section 179) as having two primary provisions you should be aware of. The first is that at the time you acquire an asset, you can now expense up to 100 percent of the cost. And, the write-off for equipment has doubled from $500,000 to $1,000,000.
Previously, companies would spread out the expense of equipment over, say, five years. Now you are allowed to take that expense in the first year. If your business is profitable, this upfront “hit” can be very beneficial as the depreciation expense lowers your taxable income, allowing you to pay less tax and keep more of your money. What you are able to do in a leasing scenario is even better. You can still make your payments over time even if you take the expense and lower your tax obligation on Day 1.
The second key advantage of the new tax law is that the provision above applies to both new and used assets. In the past, you only received benefits for the acquisition of brand new equipment, software, etc. Now used assets are covered as well. In fact, while they don’t occur often in our business, even sale/leaseback transactions can be treated this way.
The Bottom Line for Your Business Leasing
The implementation of the new tax law puts us in the coveted position of being the bearers of this very positive news! And, we’re eager to spread the word to our clients.
Ultimately, the legislation is advantageous to SMBs when it comes to acquiring assets in general. And, it’s important to remember that if that acquisition is through a capital lease, you get the best of both worlds: taking the expense up front while spreading the cash flow over time. This can be especially beneficial if your business is like most and cash flow is actually more important to you than expense.
If you have questions about how the 2018 tax law can be used to your advantage on computer, furniture, software, or other leases, please contact us. We’re happy to talk specifics about your business leasing needs and how the new legislation will impact you financially.
DFI’s Brad Bayless is off to the 2014 ELFA Annual Convention in San Diego this weekend. We look forward to an update from Brad on interesting topics and trends in the equipment leasing and commercial finance industry as the conference concludes.
Companies in Metro Denver expecting to add workers increased from this past quarter with unemployment down. Consumer confidence and business travel also increased.
“Business travel drives business growth. If you see strong numbers here, that likely means good things for the U.S. economy for the rest of the year.” Mike McCormick, executive director and COO, Global Business Travel Association.
The Equipment Leasing & Finance Foundation released the June 2014 Monthly Confidence Index for the Equipment Finance Industry last week.
When asked about the outlook for the future, David Schaefer, Chief Executive Officer, Mintaka Financial, LLC, said, “Application volume, approvals and funding are all up and are at record post-recession levels. Portfolio performance in terms of delinquency is still extraordinarily low. We are optimistic about 2014 and expect to exceed our yearly origination goals.”
Brad Bayless just returned from the ELFA National Funding Conference in Chicago. He connected with many industry leaders and engaged in productive meetings with partner companies outside of the conference. Attendance was up 10% over last year, which was up over the previous year.
The Q2 report from the Equipment Leasing & Finance Association (ELFA) expects equipment and software investment to steadily grow over the next six months as economic conditions solidify and business confidence continues to recover.
U.S. businesses, nonprofits and government agencies will spend in excess of $1.5 trillion in capital goods or fixed business investment (including software) this year, financing more than half of those assets, according to the Equipment Leasing and Finance Association (ELFA).
ELFA forecasts the following Top 10 Equipment Acquisition Trends for 2014:
1. Investment in equipment and software will reach an all-time high in 2014. As the U.S. economy and underlying economic fundamentals, including GDP, continue to improve, business investment is forecast to reach a record $1.5 trillion in 2014.
2. Equipment replacement demand will continue to drive investment. Stronger economic growth will boost businesses’ confidence and appetite for capital expenditures, but overall, equipment already in place can be used at a higher capacity. Until businesses find they need to expand their capacity to meet operational demands, their equipment investment will be in replacing existing aging or obsolete equipment.
3. Demand for equipment financing will increase due to greater stability in the federal budgeting process. Businesses will enjoy a greater level of comfort than they have in recent years to make their equipment acquisition decisions for 2014. The two-year budget agreement passed by Congress reduces fiscal pressures and lessens the chance of a potential government shutdown, while a rising tide of economic growth will lift all boats. As equipment acquisitions increase, so will businesses’ demand to finance them.
4. The global economy will play a part in the “big picture” impacting businesses’ equipment acquisition decisions. The lack of long-term breakout growth and expansion in equipment acquisition has some of its causes beyond U.S. shores. External factors like the stagnant Eurozone, foreign oil prices and the cooling of a hot Chinese economy, which have combined to impede growth, will continue in 2014.
5. Rebounding of some industry sectors will spur varied equipment types. Growth in investment is forecast for numerous equipment types, some of which will be the result of increased activity in the housing and energy sectors. The rebounding housing industry will have spillover effects on equipment verticals, including construction as well as trucking and rail transportation to ship homebuilding supplies. Manufacturers’ plans for billions of dollars in investments to take advantage of cheap, rapidly expanding U.S. supplies of oil and natural gas will expand production capacity for energy and downstream products, such as petrochemicals and plastics, and increase demand for industrial equipment.
6. A majority of U.S. businesses will use some form of financing for equipment acquisition. In 2014, investment in plant, equipment and software in the United States is projected to reach $1.5 trillion, of which 57 percent ($860 billion) is expected to be financed through loans, leases and lines of credit, a slight uptick from 55 percent in 2013. In a continuing trend, seven out of 10 businesses will use at least one form of financing to acquire equipment.
7. Credit market conditions will remain favorable for long-term equipment financing. In a continuing trend from last year, businesses will generally find an increasing credit supply as they consider equipment acquisitions.
8. A low short-term interest rate environment will continue, while long-term rates will rise but remain below the historical average. Businesses that want to conserve cash and take advantage of the many other benefits of financing their equipment acquisitions can look forward to the prospect of continued low short-term interest rates until 2015. Although the Federal Reserve’s policy agenda for 2014 will likely result in a rise in long-term interest rates, inducing some companies to lock in lower rates, they will remain low enough by historical standards to keep financing an attractive option for acquiring equipment.
9. Technology innovations will continue to improve the customer experience. While demand for software and technology equipment is expected to remain strong, equipment finance companies will use technology to optimize their delivery and fulfillment systems around customer service. They will meet a growing demand for cloud and mobile technology as well as access to real-time company data and business intelligence.
10. Long-awaited changes to the lease accounting standard will continue to be debated. A new draft of proposed lease accounting changes issued by the Financial Accounting Standards Board and the International Accounting Standards Board issued in 2013 generated substantial opposition for being too burdensome and complex. As a result, the Boards will continue re-deliberations into 2014 and will conduct additional meetings to address concerns before changes are adopted.
FOR IMMEDIATE RELEASE
Contact: Aimee Miller
Aimee Miller Marketing & Communications
DYNAMIC FUNDING, INC. ADDS DIRECTOR OF BUSINESS DEVELOPMENT
Englewood, CO (January 14, 2013) – Dynamic Funding, Inc., (DFI) a Colorado based equipment leasing company, announces the addition of John Wood as director of business development. Wood has over 20 years of experience in the equipment leasing industry.
Wood will lead DFI’s new focus on vendor and manufacturer-oriented business relationships and help establish strategic national vendor leasing accounts programs for manufacturers, distributors and resellers of technology equipment, software, office furniture and other business assets.
“John will be a great addition to the Dynamic Funding team because of his extensive expertise in the equipment leasing industry and his experience establishing and managing direct vendor and manufacturer programs,” says Brad Bayless, vice president of Dynamic Funding, Inc.
Dynamic Funding, Inc. (DFI) is a Colorado based, locally owned and operated, independent equipment leasing company. Founded in 1996, DFI is a full service lessor that provides equipment financing for technology assets, software and services, and additional operating equipment. For more information, please visit www.dynamicfundinginc.com.
Use your capital wisely. And take the strain off your balance sheet. Read the full article by Brad Bayless. “For those of us in commercial finance, our advice to business owners today is: invest in the necessary resources to grow your business without over-leveraging and keep cash readily available for your operational needs.”