Equipment financing is a strategic financial option for businesses to consider regardless of the economic climate. But, it can take an increased role during a downturn when maintaining cash flow, preserving capital, obtaining flexible financial solutions, and other benefits of financing are even more critical to helping businesses ride out the storm.

What about availability of funds and current credit tightening? An examination of market conditions indicates that equipment financing continues to enable businesses to access the assets they need to operate.

“We’re seeing a tightening of financing availability for non-investment grade credits and a continued increase in the cost of financing across the entire credit spectrum,” said Greg Goldstein, president, Macquarie Equipment Finance, LLC. “It seems some banks are focusing on supporting only their best customers and tightening credit for everyone else.” As a result, this may well be a good time for companies to consider asset secured loans or leasing as an alternative source of financing.

“Smart businesses are seeking additional sources of funding to make sure they can get capital,” said David Merrill, president, Fifth Third Leasing Co. “You don’t want to get stuck without sources of funding.”

Mike Liebsch, EVP and chief sales officer, Macquarie Equipment Finance, also observed that any traditional sources of commercial credit have become increasingly more selective about who receives funding. He added, “Large equipment lessors are a safe haven for funders because we are experienced with a proven track record, maintaining high underwriting standards in both good economic times and downturns.”

Budget cuts and capital expenditure restrictions in a downturn make financing attractive to firms that would normally buy equipment. “We’re anticipating a number of traditional buyers of equipment will start to lease because corporations will stop or reduce capital expenditures, yet they still want the asset,” said Denis McCafferty, CFO of Global Operations, De Lage Landen.

Carl C. Chrappa, president, Independent Equipment Co., added, “In tough times, equipment financing is a real plus, particularly for small companies who don’t have the cash reserves that large companies do.”

Fifth Third’s Merrill observed that as profits decline in a down economy, companies having less need for depreciation expense from purchasing assets may find leasing more beneficial.


In terms of credit availability, businesses looking to finance equipment will more than likely find that the criteria hasn’t become more restrictive. McCafferty said, “We haven’t changed lending or credit requirements because they were prudent and fair to begin with.”

Goldstein said with any downturn in the economy, it is important to take a conservative approach when adjudicating credits. Given that, he added, “Leasing companies that have strong asset and structuring expertise, as well as lifecycle asset management capabilities, have greater flexibility to take a more creative approach in approving credits.”

“As of right now, small businesses should still be able to get financing if they are financing equipment essential to their business and have a good balance sheet and cash flow,” said Christa A. Hemans, president, Court Square Leasing Corp.

Merrill noted that while credit is tighter for industries in slowdown such as trucking, construction, the railroad sector that transports construction materials, and auto related, his firm is extending credit as freely as before. “There are isolated pockets causing concern but not a major concern.”


In any economy, cost of equipment is an issue. Businesses will find the cost of equipment financing to be very competitive. As an example, a lease transaction can result in lower monthly costs since depreciation expense stays with the equipment owner and financier. Further, expertise in understanding equipment value and the re-sale market for reselling equipment can enhance the cost benefit to the lessee. “Equipment financing is our area of expertise, whereas banks and other general lenders may have more lines of business and don’t have our depth of understanding about equipment,” said McCafferty.

Most importantly, the equipment financier can be considered a valued consultant, providing additional benefits through lifecycle asset management solutions.

The current market situation finds equipment financing as vital and available as ever, enabling organizations to secure the assets they need to operate their businesses. “Equipment leasing continues to be a great source of financing for small business and large corporations alike,” said Liebsch. “The financial structuring and enhanced asset management inherent in lease financing make it very economical for companies acquiring assets and provide a great alternative to purchasing assets.”

Publication Date:08/11/2008