2008 Industry Analysis

Why should businesses look to utilize leasing now more than ever before?

With new government loan-programs being announced in the next few days, and the $700 billion bail-out bill for Wall Street failing to pass its initial vote in Congress, it is looking like 2009 will be a year of changes for financial markets.

One thing that will not change though is the resilience and adaptability of the lease financing industry to any market climate.

For the most part it is because leasing, like renting, does not require a large capital outlay, so a company only pays for the use of the equipment over a specified time period. Unlike renting however, leasing may offer lower payments through associated tax benefits that the company can take advantage of come tax-time. Also, 100% capitalized leases, the main advantage of leasing, allows the company to conserve its capital reserves while gaining the utility, and in the end ownership, of the new equipment.

During the early 1970’s, the combined effects of inflation and recession forced many businesses to seek out new and more economical financing methods. The ensuing credit crunch was especially hard on a growing small business, and as a result, leasing equipment became an attractive alternative for a growing number of these smaller companies.

In the 80’s, companies were working with more money, and they wanted to shelter those funds from government taxation. Thus those companies used leasing for the associated tax benefits to shelter their assets from exceedingly large government business taxes on small to medium companies.

Then the 90’s rolled around and leasing adapted again. In the early part of the decade, the industry saw a major boom, with the value of goods leased in the United States jumping to $129 billion in 1994. Experts predicted continued major growth, and, though they were not entirely correct, the 90’s ended with leasing leveling off on a major high note. Companies now leased more than ever.

Now, with 2008 drawing to a close, leasing must once again adapt. Almost every US economic expert is predicting some form of inflation in the near future. US banks & lending institutions are already tightening up loan requirements making it more and more difficult to qualify. Businesses, like back in the 70’s, need to seek out the most economical financing method for upcoming projects.

Leasing is a major source of financing for thousands of businesses nationwide, and the diversity of leasing companies, brokerage houses, and major manufacturers are among the many sources of leasing services.

apaladino@allmediacapital.com