Lease Me a Loan: Transport Financing on the Upswing
Today more businesses rely on leases, loans, and equipment lines of credit to finance increased spending on new equipment. Businesses have increased their capital equipment spending for the seventh consecutive year, with overall new business volume growing by 2.5 percent, according to a recent Equipment Leasing and Finance Association (ELFA) study.
The equipment-financing sector outperformed the broader economy, which grew just 1.6 percent in 2016, according to the U.S. Department of Commerce. This data suggests that companies are optimistic that the bull market will continue, and are allocating capital spending toward business growth initiatives.
The transportation sector represents one of the top most-financed equipment types at 26 percent, according to the ELFA. Transportation collateral is considered anything from trains to steamrollers to forklifts, all of which help streamline the manufacturing and shipment of goods.
Companies that are interested in financing transportation equipment in 2018 have a number of product and partner choices. The two most popular products companies should seek in a rising interest rate environment are:
- Longer-term loans. Loans with three- to five-year terms for tractors and seven plus years for trailers allow companies to bring down the monthly cost.
- Tax-oriented leases. These leases give "the lessor" the ability to claim the tax benefits of ownership through depreciation deductions, but pass through to the lessee those benefits in the form of reduced rentals.
Another potential tailwind for transportation investment is if the Trump administration pushes for a major infrastructure-spending package in 2018. With many roads, bridges, and transportation hubs across the country still needing work, a major opportunity exists for transportation companies to use equipment financing to meet the increased demand for the transportation of materials needed to improve our local and national infrastructure.