Analysts Hold Optimistic Outlook for Future of Equipment Leasing Sector
Equipment leasing is increasingly popular option in many parts of the world. Recent reports from the Equipment Leasing & Finance Foundation and Fitch Ratings show that the industry is expected to grow steadily for the foreseeable future.
Demand for Equipment Leasing to Grow
The Equipment Leasing & Finance Foundation reports that application volume has increased significantly during the past quarter. They predict that the surge in demand will exceed 50% quarter-over-quarter by the end of the year.Â Â There appear to be a number of factors driving growth.
Focus on Leverage
Global businesses are taking new measures to leverage their capital. Equipment leasing allows them to acquire access to essential assets to grow their business without spending a substantial amount of money upfront, which allows them to use that capital for other assets needed to expand.
Cash Flow Management
Equipment leasing also allows firms to manage their cash flow more easily. Rather than needing to spend a large sum of money to acquire new capital, they can spread payments out over larger periods of time. This option reduces the burden of irregular capital expenditures and allows firms to plan their payments more easily.
Keeps Financial Ratios Elevated
Companies that use cash to purchase large sums of capital reduce their current asset balance. As a result, their liquidity ratios are lowered as well. This can create problems for companies seeking to borrow money over the next year or two.
Leasing capital allows them to keep a larger sum of cash on hand, which alleviates lender concerns about solvency. Companies that intend to pursue a loan in the near future should consider it as an alternative to paying cash for new expenditures.
Protect Against Obsolescence
A manufacturerâ€™s obligation to customers ends as soon as the product is sold. Unfortunately, companies that invest in a new piece of equipment may discover that it is obsolete a year down the road. They may be unable to recoup any of the costs of the initial investment and will still be stuck making payments on an existing loan.
Leasing equipment is often a good way to mitigate these risks. Many companies offer guarantees to protect against obsolescence by allowing customers to turn in their old equipment for a new model without taking on a new lease.
Global Market for Equipment Leasing Will Grow
Fitch Ratings reports that the market for equipment leasing varies among industry and region. However, the market is clearly growing significantly. Uncertainty in the global economy and rapid changes in various industries are making equipment leasing more popular than ever.