2009 Trends – Cash is King

By | February 19, 2009

cash is king equipment financingStaying on the New Year theme, I’d like to discuss a trend or two that I am already seeing (well, events from last year are forming these opinions as well – I don’t want you to think I’m forming these opinions after a week or two.) But different from my last post, these aren’t “predictions”, but things that I see going on in business and in equipment finance (and unlike my predictions, this stuff is kind of true, because it’s happening now.)

  • Cash (and cash flow) is King. Once again. The trend in recent years has moved away from having a large cash reserve. Essentially, high returns elsewhere meant having cash was a losing proposition. You don’t even need a business degree to see this – how many homeowners in recent years have used home equity as a quasi savings account? Well, this has ended – just like the homeowner with little equity, the business without a cash reserve may find itself in a very weak position, and unable to compete for very long.
  • Related to the above, credit is tightening further. It’s harder to get a loan, whether you want to expand your business or simply buy a car. Especially if you are a business without cash. And while equipment financing companies (like mine) have much softer restrictions than the bank, we’re even looking a little harder.
  • However, I am seeing an increase of “new blood” look to equipment financing. This started in the third quarter of last year, and has continued right up to… well, I got another call when I was writing this post. Companies that typically used cash to buy equipment have started to look into saving that cash, and instead lease equipment. Most of these companies are strong, smart companies that recognize the increased value of intelligently paying over time, instead of laying out a large sum of cash. Yes, credit can be harder to get today, but if you are a solid company, chances are you can get an equipment lease.

Basically, the bottom line here is simple. If you can keep a cash reserve, do it. It will make your company stronger. Ironically, if you lease equipment instead of buy it, you have more cash on hand, which will increase your attractiveness to all lenders (not just equipment finance companies.)

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