Corporate perceptions of the economic outlook will be a primary driver of business investment decisions this year, according to the Equipment Leasing and Finance Association (ELFA), which revealed its Top 10 Equipment Acquisition Trends for 2013.
Despite pressing considerations such as technological innovations and aging equipment, the economy will be the true barometer for whether or not businesses acquire new equipment in 2013.
The rest of the top 10:
Equipment investment will pick up in the second half of 2013. Equipment investment will grow this year, although the rate of growth will be hampered by fiscal uncertainty. Some companies will remain cautious about taking on large capital investments even now that important decisions impacting short-term fiscal stability have been made. Equipment acquisition activity will gain momentum through relief from the policy uncertainty that brought the economy to the edge of the fiscal cliff. An improving housing sector will provide an added boost.
Pent-up demand will spur investment across varied equipment types. Demand for replacement equipment will drive investment in the construction, agriculture and transportation categories in particular, while other equipment types will await the replacement cycle. However, greater economic improvements will be needed before significant equipment investment expansion takes place.
A continuing low interest rate environment will enable companies to acquire the equipment they need and conserve cash. The prospect of continued low interest rates at least through 2014 will be an incentive for businesses to acquire equipment through financing and still hold on to their cash for uncertainties. In addition to maintaining cash flow, equipment financing will help businesses preserve capital and improve expense planning in challenging economic conditions.
A majority of U.S. businesses will use some form of financing for equipment acquisition. In 2013, $742 billion (55%) of the projected $1.3 trillion investment in plant, equipment and software investment in the United States will be financed through loans, leases and lines of credit. Seven out of 10 businesses will use at least one form of financing to acquire equipment.
Business size will impact equipment acquisition. Size will matter when acquiring equipment in 2013. Primarily larger businesses anticipate increasing equipment spending over the next 12 months. Small companies’ high degree of concern about general economic conditions and less access to credit will temper their equipment acquisition plans.
The gaining prominence of cloud computing will transform the way businesses pay for IT investments. Along with changes in how companies consume software and hardware, cloud computing will spawn new financing options. Companies will look to equipment financiers for variable payment structures in the cloud.
Credit market conditions will remain favorable for long-term equipment financing. Businesses will generally find an improving credit supply as they consider equipment acquisitions.
The one-year extension of bonus depreciation may provide incentives for businesses to acquire equipment. The continuation of the depreciation bonus will allow businesses to deduct up to 50 percent of the cost of new equipment purchases in 2013.
Although the value of lease financing will remain, businesses will begin to adapt their equipment acquisition strategies to comply with long-awaited changes to lease accounting standards. A new draft of proposed changes to lease accounting standards by the Financial Accounting Standards Board and the International Accounting Standards Board should be announced this year, enabling businesses to begin to evaluate how their balance sheets, earnings and other financials will be affected by equipment financing agreements.
For a video that discusses the Top 10 Equipment Acquisition Trends for 2013, go to http://www.equipmentfinanceadvantage.org/Articles/10Trends.cfm