Now more than ever, small businesses are turning to equipment financing to generate bigger profits and long-term stability for the company. Despite a few bumps in the road, the leasing and financing industry continues to show signs of solid growth. In particular, this industry is gaining ground in the agriculture sector as more farmers and smaller ag companies begin realizing the vast advantages of leasing farming equipment.
Finance index wobbles but stays steady
The Equipment Leasing and Finance Association released its Monthly Leasing and Finance Index, which reported the $8.4 billion of new business volume for the leasing industry increased 22 percent from August’s 6.9 billion. While this is also good enough to account for 4 percent of growth year to date, it also marks a year-over-year decrease of 13 percent.
“Cautious optimism continues as the watch word [sic] for MLFI-25 companies who report steady, but slow, growth for the month,” said William G. Sutton, ELFA president and CEO. “While the U.S. economy slogs along, dragged down by low oil demand, an uneven labor market, a volatile equities market and troublesome signals from the Chinese economy, business expansion and demand for productive asset follows suit.”
Confidence remains strong
In addition to the ELFA index, the Equipment Leasing and Finance Foundation released its Monthly Confidence Index for October, which showed the confidence level dipped from 61.1 in September to 58.7 for the month. While this number did decrease slightly, it still represented a solid outlook for the equipment leasing industry, since any rating over 50 is a positive indicator for the sector.
In particular, 77.8 percent of respondents from the finance and leasing industry felt confident that conditions will remain stable for the next four months, a 7.4-percent increase over last month’s survey. The percentage of respondents who also expect demand for leases and loans to fund working capital expenditures to remain the same also increased, with 70.4 percent believing this, compared to 59.3 percent who believed this last month.
Equipment leasing becoming important in agriculture
Over the past few years, the agriculture sector has been facing thinner profit margins and tighter access to critical capital. According to CropLife, 2015’s net farm income is predicted to decrease 36 percent over 2014’s totals, meaning this sector is currently experiencing a down cycle. This can put even more constraints on what farmers are able to plant and harvest, which means smaller crop sizes and lower revenues.
One of the biggest factors many smaller farmers have to contend with is the continued growth of larger farms. Bigger operations are capable of purchasing top-of-the-line equipment that allows them to farm more land and bring more produce to the market. Smaller farmers cannot compete with the purchasing power of these major ag companies, which can leave them scrambling to work longer hours and do their best to keep up.
Thankfully, many farmers are realizing the value of leasing their equipment rather than outright purchasing it. This method offers considerable benefits to small operations that cannot afford to constantly buy new equipment or replace broken machinery. Leasing equipment allows these smaller operations the opportunity to trade in old and outdated equipment with the latest models. This also helps during down cycles when farmers need to trim their expenditures and cut overhead.
Farmers and leasing firms can build a strong relationship to ensure both sides are able to boost revenue and increase profit margins, even during a down cycle. And then, over time, once the current trend reverses and the agriculture sector finds itself in an up cycle, the benefits from leasing equipment become even more pronounced. Beyond leasing equipment, farmers can also inject capital into their agribusiness through an agriculture business loan. Be sure to analyze all your financing options before purchasing equipment for your agribusiness.