Top Business Equipment Leasing Trends That Will Shape 2019
Equipment acquisition continually drives the supply chains in the US industrial and manufacturing sector. Business equipment leasing finance offers the capital needed for US businesses that want to invest in expensive production machinery. These assets are necessary to enhance productivity and profitability as a result.
The equipment finance sector is worth a massive $1 trillion and shows no sign of declining in the next two years. US government agencies, businesses, and non-profits are likely to invest nearly $2T to acquire capital goods/fixed business investments in 2019. Therefore, the trends affecting the equipment acquisition and finance sector should be of interest, given their contribution to the economy.
Sixty percent of US manufacturing and service businesses rely on financing to acquire the equipment needed to drive operations. Equipment Leasing and Finance Association (ELFA) CEO/President Ralph Petta, offered the 2019 equipment acquisition trends. This information will help businesses understand the market environment and tailor their equipment acquisition plans accordingly.
This information is compiled by distilling data from research projects, industry experts, and member inputs during ELFA conferences and meetings. Read on to learn more.
1. Capital Spending Is Expected to Stay in Positive Territory
In the first half of 2018, the sector saw marked improvement in the degree of investments in equipment and fixed business assets, including software. This was driven by the then-healthy economic landscape and preferential tax treatment.
The second half showed a slump in growth, and the year ended in a less robust position compared with previous years. In 2018, the equipment and software investment sector saw a 7.9 percent growth from 2017. In 2019, a moderate but healthy growth rate of 4.1 percent can be expected.
2. Share of Equipment and Software Investment Acquired through Financing to Remain Stable
Equipment leasing and finance will be the most popular way that businesses will use to acquire capital assets and software in 2019. The rate of acquisition of both financed and non-financed assets is expected to grow steadily, according to ELFA projections.
The proclivity of businesses to use equipment financing stays steady, irrespective of lower tax rates, higher interest rates, and the strength of the economy – all of which have put more cash into companies’ hands.
3. Many of the Major Equipment Verticals Will Show Solid Growth in Investment
Throughout the first half of 2019, many equipment verticals have wither held steady or built on last year’s investment growth. These verticals include construction, software, computers, aircraft, ships and boats, and materials handling.
Equipment verticals expected to peak in 2019 include medical equipment, agriculture, and trucking verticals. However, some decline may be seen in a few verticals to allow for maturation of their business cycles.
4. US Businesses Will Not Be Spared from the Impact of Economic Headwinds Globally
Many US companies will that find the conditions of global marketplaces need to be factored into their internal business decisions this year. The US economy will be adversely affected by changes in global markets, and capital spending decisions will not be spared.
Specifically, the US vs. China trade policy conflicts, global credit tightening, and slowdowns in Europe, China, and other emerging markets have the most significant impact.
5. Financed and Leased Acquisitions Will Receive a Boost Following Legislative and Regulatory Changes
The new federal tax law and lease accounting standard ASC 842 have changed slightly. These changes include provisions which maintain or even improve on the previous financing benefits. Some include expensing of new and used equipment and 100 percent bonus depreciation, among others.
A few new upsides include improvement of balance sheet calculations in rating agencies, an increase in the deductibility of interest expenses, and reduced capitalized asset costs vis-à-vis cash/loan purchase.
6. Capital Spending Will Prioritize Technological Advancement Investment to Avoid Obsolescence
Equipment acquisition finance firms through industries will research new technologies for everything. Specifically, research aims to enhance end-user experiences, increase efficiency, and manage obsolescence.
How well or poorly these businesses manage to implement emerging technologies like artificial intelligence, robotics and blockchain will set up the ones that become market leaders from the rest.
7. Equipment Management Innovation Will Be Fast-Tracked to Address the Increasingly Complex Setting of Residual Value
In the face of rapid technological advancements and market globalization, asset values have shifted rapidly, and industry cycles have become shortened. In this landscape, equipment managers must apply their industry expertise to the deployment of data analytics and robust technology platforms when providing residual values.
Businesses that will acquire new or used equipment will benefit from increasingly stiff competition and enhancement in customer service in equipment management.
7. The Uncertainty Surrounding Interest Rate Hikes Will Direct Focus towards Fed Activity
Interest rates in 2018 increased five times, and in 2019 this number has been two so far. The reduction in interest hiking is likely to impact end-users looking for funds and equipment suppliers alike. Planned hikes may be delayed by what looks like a relenting global economic landscape.
Nonetheless, businesses will be focused on policy changes so that they can plan for them accordingly.
8. Activities of the Federal Government Will Present Both Challenges and Opportunities in Capital Expenditure
Even as businesses keep benefitting from federal deregulation policies, momentum may be hindered by the actions of a currently divided Congress. Political dysfunction and brinksmanship will present challenges in collaboration for suitable legislation.
However, bipartisan cooperation could see the long-awaited infrastructure spending bill receiving support. But the proposed legislation window in 2019 is still unknown.
9. Expect External “Wild Cards” to Factor into Decisions on Capital Expenditure
There’s a generally positive outlook towards capital spending in 2019. Nevertheless, businesses must keep their eyes out in certain areas, where there is a potential impact on their equipment acquisition strategies.
For instance, forecasted modest to moderate growth of business investment may decline if constricting credit conditions or trade tensions keep eroding business confidence.
The oil sector remains exposed to uncertainty because of several variables: increasing production in the US, falling oil prices and a declining global economy. The housing sector weakening is expected to persist since factors inhibiting its growth remain in place.
Finally, significant developments on the global scale, such as Brexit terms and economic deterioration of US trade partners, could negatively impact equipment acquisition growth within the US.
Business Equipment Leasing – Final Thoughts
The world of business equipment leasing is subject to many external factors. These factors may increase or reduce the momentum of the sector, and many details have been highlighted above.
Still, equipment financing has provided many benefits to US businesses and resulted in growth that should not have been witnessed otherwise. The significance of the sector to the US economy cannot be overstated.
Do you have any questions? Be sure to reach out to us today.