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EQUIPMENT FINANCING
Tips to navigating the current financial landscape
After seven rate hikes in 2022, taking the federal funds rate from .25% to 4.5%, and more rate hikes on the horizon in 2023, it can be hard to decide the best course of action when it comes to business purchases. Companies leverage the benefits of financing to help grow and expand their businesses, but in these current economic times and on the cusp of another recession, do those benefits still hold true?
Here are some things to keep in mind when deciding if financing is right for you in the current economy.
As most business owners know, sometimes you have to spend money to make money. Even as rates rise, there still is equipment that is essential to keep your business profitable. Though it’s more expensive now to borrow funds, it can be even more expensive to not invest in new equipment or replace old equipment.
Making new equipment purchases can help you stay competitive in your market, decrease your cost of operation, improve your efficiency, or even increase revenue. If you’re a franchise owner, you may have equipment requirements that make it mandatory to invest in new or upgrade existing equipment.
For most business owners looking for equipment financing, higher rates don’t remove the need for making those purchases. It’s simply a question of whether the benefits outweigh the costs.
With interest rates rising quickly, it can feel like the stakes and sense of urgency are heightened too. Maybe you were considering a big equipment purchase, but by the time you made your decision, interest rates had been increased. It’s easy to feel like you’re losing money just for taking the time to weigh your options, but it’s important not to get caught up in the comparison game.
You’re not comparing the rate you could have gotten last week to the rate you’re getting now. The rate last week is gone and isn’t going to come back for a long time most likely. What you’re comparing now is the rate you’re currently being offered to not financing at all, either making do without the purchase or depleting your cash reserves.
Plus, rates are still rising. At least for the foreseeable future, the best rate you’re going to get is the rate you can get right now.
It’s always important to keep your options open, but especially in financial times like the present, it’s even more crucial to know all the tools available to you. With higher equipment costs and rising rates, you may decide leasing is better than purchasing. Plus, the lessee doesn’t take on the time and hassle of selling the equipment at the end of the lease. Maybe the best option for you is to own your equipment for the potential tax savings and deductibles available.
Whatever you decide, the most important thing is working with a finance expert who you can trust. At United Leasing & Finance, our corporate account executives are experts in their industries, whether it’s fitness, fleet and transportation, hospitality, franchising, or others, and they are prepared to support you throughout your decision making. We also pride ourselves on our ability to be creative with our financing depending on your needs. For example, if you have a seasonal business renting tents for events, payments structured around your seasonality may work best.
You’re probably thinking that there isn’t much of a positive to rising rates and an increased cost of borrowing money, but this is all a sign that the Fed is confident in the strength of the economy and is keeping the overall health of the economy in mind as they curb high inflation. You should also keep in mind that when it comes to a rise in rates, the monthly payments on an equipment loan are affected less because of their structure and shorter life terms compared to longer-term loans, like a mortgage. If you need another piece of good news to soothe your sticker shock, vehicle and equipment prices are finally on the downturn. According to analysts at J.P. Morgan, they predict used-car prices will fall 10-20% this year, while new-car prices will drop 2.5-5%.
Of course, it’s always good to keep things in perspective. Take a look at the figure below showing the history of the federal funds rate since 1954. As you can see, even our increased rates today are comparatively low when you look back through the past several decades.
The biggest thing to remember, however, in this intimidating economic landscape is that this is simply a phase. What comes up will eventually come back down. In the meantime, it’s more important than ever to keep your business goals at the forefront of your decision making. Don’t let the worry of higher interest rates keep you from growing and propelling your business to further success.
United Leasing & Finance is a customer-focused and growth-oriented leasing and finance company committed to providing custom financing solutions to businesses across the U.S. and Canada. For almost 60 years, United has partnered with clients to achieve mutual success from small businesses to Fortune 100 companies.
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