As the economy begins to reopen, businesses are again starting to invest in equipment and other capital expenditures.
Investment in equipment and software is expected to grow year-over-year 11.2% in 2021, the highest since 2012, according to Washington-based Equipment Leasing and Finance Association (ELFA). That follows a -2.1% decline in investments for 2020.
‘Expectations of better days ahead’
“After a year of pandemic shutdowns and negative effects, there’s a growing feeling of optimism among consumers and businesses rooted in expectations of better days ahead,” says ELFA president and CEO Ralph Petta.
Equipment and software investment growth saw a 21% surge in Q4 2020, which provided a strong lead into 2021, he says.
“Substantial pent-up demand and a booming housing market underlie the economic optimism,” Petta says. Experts also say funds from the Payment Protection Program also helped keep businesses operational, so they could then invest back into their business.
Demand is expected to be strong for areas such as medical equipment (surgical supplies and equipment, imaging machinery and dental equipment), computers and software, ELFA says.
Equipments can be leased or loaned
Generally, equipment financing is provided specifically for the acquisition of equipment. It could take the form of a loan or lease. The terms and conditions vary on factors including credit history and years in business, Petta says.
In 2020, Petta notes, up to 95% of equipment financing companies offered payment deferrals, including extensions, modifications or restructuring.
Signature Financial LLC in Melville, a subsidiary of Signature Bank that provides financing for commercial equipment and other specialty lending, says approximately one quarter of their clients needed either full or partial short-term payment deferral.
This included clients in manufacturing, construction and industrial and motor coach businesses, says Signature Financial president and CEO Walter Rabin.
‘A return to normalcy’
“More than 90% of these clients are back to making full payments on their obligations,” says Rabin. Overall, “we’re seeing steady improvement across almost all sectors in 2021.”
John-Paul Smolenski, CEO of MMP Capital, a Farmingdale-based lender specializing in equipment financing, leasing and unsecured capital financing, says he is “seeing a return to normalcy.”
“We had a decent first quarter, slightly better than it was last year,” he says.
Demand in health sector financing
Among bright spots, he says, is that equipment financing for the health care sector is booming as demand for services is increasing.
With PPP loans combined with manufacturers giving discounts of up to 60%, Smolenski says, there were investments in equipment, although about a third of his customers asked for temporary payment deferrals last year.
The bulk of loans are five-year, with interest rates between 3.5% to 15% APR based on credit, time in business, experience, and the size of the device, Smolenski says. An average loan size is $125,000.
Opening a new customer base
In most cases, the equipment is key to sustaining operations, especially during the pandemic.
That was the case for Gary Pincus, owner of Printstation of NY, a New Hyde Park-based printing and signage company, who toward the end of 2019, snagged a five-year $155,000 loan through MMP Capital to buy a UV flatbed printer and cutter.
Since he also owns Send In The Clowns, a party planning and rental company, he thought he could use the equipment to also serve those customers.
Then the pandemic hit and his party business, his main revenue driver, shut down.
“We had this printer and I had to figure out how to make money with it,” he says.
So, he started making lawn signs for birthdays and other events — he made over 10,000 fan cutouts for the Mets that were placed in seats at Citi Field last season.
The equipment Pincus financed through MMP Capital helped him stay in business and “opened up a whole new customer base,” he says.
Benefits to financing
The positive to equipment financing is, “you’re conserving your capital in cash,” says Joseph Camberato, CEO of National Business Capital in Bohemia, which provides small business loans and services including equipment financing.
You can also depreciate the equipment through certain deductions like Section 179, he says.
For 2021, he says, equipment financing has kicked up and there’s great demand for financing contractor-style equipment like backhoes and refrigerated trucks with a surge in food delivery and online food service businesses.
The bulk of financing requests are between $50,000 and $250,000 mostly for five-year loans with usually 6-8% interest rates.
“I think the second half of the year will be very busy,” he says.
According to an April survey by the Equipment Leasing and Finance Foundation, the nonprofit affiliate of ELFA, 73.3% of executives responding (out of a pool of 50 respondents) said they believe business conditions will improve over the next four months, up from 50% in March.