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Why Leasing Equipment Is a Smart Move in an Uncertain Economy

As the Federal Reserve continues its efforts to slow the economy and fight inflation, it is not a surprise that interest rates are expected to increase throughout 2023. What may come as a surprise, however, is that despite rising rates, investment in capital expenditures (CapEx) is on the rise as well. 

Christina Floyd and Karen Leastman
Christina Floyd and Karen Leastman

Vice Presidents
First American Legal Finance

According to Deloitte’s Q4 2022 CFO Signals, in 2023, 66% of Chief Financial Officers (CFOs) plan to allocate or reallocate capital to new business investments. These investments are necessary to increase efficiencies, maximize profits and stay ahead of the competition — but in the current economic environment, law firms are seeking new, creative ways to acquire the needed equipment. 

WHY FINANCING NOW MAKES SENSE 

Despite increasing interest rates, capital project financing is on the rise. Below are reasons why leasing equipment may make more sense than ever: 

  • Pay for Use, Not for Ownership: A lease allows you to pay less than the cash purchase price for the equipment and avoid other indirect costs of ownership, like ongoing maintenance.
  • Build in Cost Certainty: Leasing provides budget consistency, with fixed monthly payments that are spread out over time. Lease agreements typically offer the lowest monthly payment, giving you access to a lower cost of capital.
  • Take Advantage of Accounting Benefits: Operating leases are capitalized on your balance sheet for less than the asset’s true cost, and you can claim the entire amount of the lease rental payment as a tax deduction.
  • Use Cash for Other Opportunities: With leasing, more cash is available to move to better-performing investment options. Cash can also be better leveraged for critical business initiatives, like hiring and retaining your top talent. 
ALA's Job Bank
ALA's Job Bank
 

HOW TO GET AHEAD OF RATE INCREASES

To protect your budgets from these imminent rate hikes, consider the following:  

  • Rate Locks: Build predictability into your budget by securing your rate from the start. Your cost of funds on the day you sign your proposal will be the cost of funds when you close.
  • Step Payments: Begin with minimal payments that increase over the life of your lease, with the flexibility to choose when you would like payment increases to occur. 
  • Cash Reimbursement: A cash reimbursement for purchases made within the last 12 months can help you preserve your cash position, manage bank covenants and pay down high-rate debt. 

In the current economic environment, law firms seeking new, creative ways to acquire the equipment they need may find leasing a more cost-effective and beneficial option than purchasing outright. Despite increasing interest rates, financing investment in CapEx is on the rise, and leasing offers several advantages, such as cost certainty, accounting benefits and cash availability for other opportunities. Choosing to finance your firm’s upcoming projects through leasing can be a smart choice in navigating the challenging economic landscape ahead.

 

About the Authors

Christina Floyd, MBA, is a Certified Lease and Finance Professional (CLFP) and has almost a decade of equipment leasing knowledge and dedicated experience working with the legal industry. Additionally, she has successfully completed the Legal Management Finance Specialist Certificate Program through ALA. In her tenure, Floyd has been instrumental in growing First American’s legal business to more than 250 firms.
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Karen Leastman has more than a decade of equipment leasing knowledge and dedicated experience working with the law firm industry. Since joining First American in 2003, she has been a key contributor in building First American’s law firm division which now serves more than 250 law firms across the United States, including Am Law 100 and 200 firms. As a Certified Lease and Finance Professional (CLFP), Leastman is a leader in the equipment leasing industry.
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