A New Lease on Life

Financing equipment is a big decision. Weighing all equipment acquisition options is critical - especially in today's recovering economy In 2003, the Equipment Leasing. Association surveyed the Small Business Administration's State Small Business Contest winners and found that nearly one-third of

Top reasons to lease include capital conservation and flexibility, as well as the ability to manage company growth, take advantage of the latest technology and improve asset management. A new study issued in March 2004, however, goes beyond the lease vs. buy analysis.

The study, The Economic Contribution of the Equipment Leasing Industry to the US. Economy, examines the impact the equipment leasing and finance industry has on the U.S. economy and jobs. Commissioned by the Equipment Leasing Association in August 2003 and conducted by Global insight, a global economic and financial forecasting company, the study shows that over the 1991-2002 period, the equipment leasing industry produced between $100 billion and $300 billion additional real GDP Additionally, the industry produced between $227 billion and $229 billion additional real equipment investment, and created between 3 million and 5 million additional jobs.

The most important contribution of the equipment leasing industry ties in providing access to capital. Clearly this study shows that if leasing were unavailable many entities, from non-profit to private organizations, from taxexempt entities to public companies, would not be able to acquire the equipment they need.

Recently we had to restructure our financials to expand our entire plant and we were able to move quickly with leasing," said Richard Viti, executive vice president and CFO of Tast i Twist Bakers, Inc. dba Delorio's Frozen Dough Co.. a $7.6 million commercial frozen dough processor. "We lease for a variety of reasons: convenience, shorter term around time, tax reasons, balance sheet management.

But, Viti said leasing also helps with labor. "We're in the position of growing and needing people. With leasing we acquired better equipment, faster. so we were able to reduce labor needed to produce our products and hired additional people to help sell them," he said. "Also, with freed up capital, we were able to otter more competitive salaries and benefits when recruiting for upper management and administrative positions."

IT Market Spurred By Leasing

The Global Insight study shows that, of the total $229 billion impact on equipment investment, more than one half ($122 billion) is concentrated in computer equipment. Industrial equipment categories aircraft, especially transportation and industrial equipment - account for most of the balance.

A am not surprised by the large figures," said Irv Rothman, president and CFO, HP Financial Services. AT equipment, especially, lends itself to financing rather than cash purchase."

"Leasing is the smartest way to invest in IT This strategy gets us into an IT refresh cycle and is an affordable way to have the latest technology working for us. Plus, leasing lets us spread our "costs out over time," said Michael Strohmaier, IT manager, Delicato Family Vineyards, one of the leading family winegrowers in America.

"We know that customers spend 20 percent more when they finance vs. when they pay cash," added Rothman. If businesses don't have the financial flexibility to refresh their technology to adapt to market changes, then there likely would be a slow down in equipment acquisition overall."

James Beard, president of Caterpillar Financial Services Corp., agrees. "Leasing being unavailable would certainly slow down equipment replacement. Time flies, and the next thing you know a 2 to 3 year lease is up. If you didn't have an expiring lease agreement pushing you to decide what to do next, a business might delay an upgrade or replacement. In addition, leasing offers cash flow benefits in the form of a lower monthly payment, so it is easy to see how business and the economy benefits from leasing."

The Effect on Manufacturing

Global Insight also estimated that an additional $120 billion accrues to the rest of the economy through additional spending on goods and services in markets that are peripheral to equipment markets.

"Not only do many Fortune 100 and investment grade companies have leasing as a built-in component of capital structure," said Joe Lane, vice chairman of Bay4 Capital LLC, "but, from a manufacturer's standpoint, leasing as seller-assisted financing moves a significant portion of their products into the marketplace."

"From the manufacturer side, buying power is expanded due to leasing." concurred Rothman. "When a customer feels their buying power increases, they become more confident in acquiring equipment.

According to the study, several factors exist to show why leasing's fundamental contribution is critical, and why its value to the economy is so large, including:

* Leasing, as a way of acquiring the use of equipment, cuts across goodsproducing and servicesproducing industries in the U.S. economy.

* Leasing is a crucial approach to acquiring a variety of equipment types, especially high-technology equipment, which is vital to innovation and growth.

* Leasing arrangements are used by all sizes of businesses, even though their capital requirements may, differ,

This third-party report reinforces what FLA knew: the leasing industry clearly has a significant, positive impact on the economy.

Visit www.elaonline.com/inclustrvData,/FLAEconomicContrib.pdf

for the entire study, The Economic Contribution of the Equipment Leasing Industry to the U.S. Economy. For more information on leasing, visit www.ChooseLeasing.org to access the 10 questions to ask before signing a lease, to identifty a lessor in your area, a glossary of terms and more.