2011 Looking Bright For U.S. Company Growth and Purchases

Companies are looking to expand and that means new equipment purchases in the near future.  This outlook is bright coming off of two tough years in the equipment leasing industry.  Slow growth combined with economic uncertainty was not a good combination for the leasing industry.  There seems to be a bright light at the end of this tunnel. Forecasts seem promising and the tax benefits for companies to buy are enticing.

Investment by U.S. companies in equipment and software in the third quarter was up 15% from a year earlier to $1.08 trillion, nearly matching prerecession levels, government data show.
Corporations received more incentives to invest Dec. 17, when President Obama signed into law a tax compromise reached by Congress that, among other things, lets companies deduct from taxable income 100% of certain types of investments in 2011.

It seems that big U.S. companies have cleaned up their balance sheets and, appear to be flush with cash.  These U.S. companies are open to using the cash in 2011 on factories, stores and even hiring. Companies worked hard the last few years and especially in 2010 to preserve cash, and are slowly coming around to spending it.  According to Bloomberg Business U.S. companies are turning around and starting to feel comfortable with the economic outlook.

The maker of specialty glass and ceramics is investing $300 million to expand its research and development center near its headquarters in Corning, N.Y., adding about 100 researchers and Ph.D.s. It also is spending $800 million on a liquid-crystal display factory in China and building more LCD capacity in Taiwan.

Engine maker Cummins Inc., meantime, plans to add about 2,500 U.S. jobs in 2011, many requiring engineering or other technical skills. In 2010, Cummins raised its U.S. employment by only 185 people. The company has about 14,800 U.S. employees.

At the end of the third quarter, cash held by 419 nonfinancial companies in the Standard & Poor's 500 list was up 49% from three years ago—before the start of the recession—while total debt was up a more modest 14%, according to an analysis by The Wall Street Journal.
The good news: The improvement in just the past year was even more pronounced: cash was up 10.6% from the 2009 level, while debt grew 2%.

Profits are higher, too, after companies slashed their work forces and closed less-efficient operations. Total U.S. corporate profits in 2010's third quarter rose 26% from a year earlier to $1.64 trillion, the highest in four years, according to government data.

With this stronger foundation, coupled with new confidence about the global economy, corporations are looking to expand.  Continued growth in the mining and energy businesses around the world is expected to fuel a wide range of U.S. companies. IT spending seems to be on everyones mind and will head up the priority spending list this new year.

Source:

Standard & Poors Capital IQ

Bloomberg Business

Wall Street Journal

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How To Determine The Best Approach For Financing Your Equipment

If your company is looking to expand, upgrade or just keep operations running smoothly, having the right equipment financing solution can affect your overall financial position. Financing is available for all sizes of equipment acquisitions, from technology upgrades to heavy equipment such as mining equipment or yellow iron. When seeking out an equipment financing source, it’s important for businesses to be prepared.

What are the first things to consider when financing equipment?
Look at your company’s capital position to determine what the right financing option is. Future cash flow should also be a consideration, as financing may affect the cash flow of the company both in terms of the productivity the equipment may provide and the required payments. It is also a good idea to consult with your company’s accountant to help determine the best option available for the business.
Before acquiring equipment, evaluate the value that the equipment is likely to bring your business. Business leaders then need to decide what financing product makes the most sense for the company, whether it is to lease the equipment, obtain a loan or use cash to purchase. Each option has its benefits.
A lease, for example, typically has little to no out-of-pocket expense up front, whereas a loan may require a down payment or equity injection into the equipment. Business leaders should also consider what impact a lease or loan will have on the company’s balance sheet. Some leases are off-balance-sheet financing, so the lease payment shows as an expense on the income statement rather than a liability on the balance sheet. If leased, the asset is not carried on the balance sheet either. This can be helpful for a company that has to comply with leverage or debt covenants because these ratios remain unaffected with a lease. Leases can also provide a company with more flexibility regarding the equipment. Some lease structures can include options to return the equipment at the end of the lease, upgrade the equipment, purchase the equipment, or renegotiate the lease. This can allow a company to keep up to date with changes in technology and may provide a competitive advantage in the market.

Can multiple pieces of equipment be financed?
Many business owners want the convenience of a single transaction covering multiple items instead of having separate transactions for various pieces of equipment. Equipment can be combined into a single transaction based on the equipment types, reasonable usefulness, or life. For example, if two pieces of equipment are being acquired, one with a useful period of 10 years and the other a useful period of five years, financing may be structured for seven years to combine the equipment and provide the convenience of one note to the borrower.

When should companies apply for equipment financing?
You should begin to explore financing options as soon as you think that you may need to acquire any new or used equipment. For a company that is expecting to grow and is forecasting an equipment need at a later point and time, equipment lines of credit may be a smart option to have in place in order to provide flexibility to purchase the equipment more efficiently on your own schedule.

Are there special interest rates or payment plans available for equipment financing?
In some cases, a company may obtain financing with no payment due for a period of time, designed to allow the company to get the new equipment up and running and producing revenue before a payment is due. Other seasonal businesses may opt for structured, or skip, payments, which allow the company to match payments to the seasonality of its business and can improve cash flow.

Do certain types of equipment financing offer tax advantages?
When a company purchases equipment, it may be able to take depreciation deductions over a period of time, which lowers its taxable income. Many companies over the last several years have also been able to take advantage of government stimulus programs that allow for accelerated depreciation of equipment or an increase in the Section 179 expense allowance. The interest payments of an equipment loan, and the entire lease payment for some lease structures, are also expensed on the income statement, which can lower taxable income. Before making a purchase, talk to your accountant or tax adviser to learn how specific tax incentives can work for your business.