Why Expected Interest Rate Hikes Make This a Great Time to Lease
May 4, 2018
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.