How inflation (and equipment financing) can help businesses

By | February 22, 2011

equipment finance applications InflationIn a recent post, I mentioned how I felt a little inflation was inevitable in 2011. I also mentioned that that might not be such a bad thing for businesses – at least in this equipment financing guru’s eyes.

See, when there’s inflation (or even a threat of inflation), businesses get a renewed sense of urgency in all things financial. And a renewed sense of urgency is a good thing, because then things happen.

Now let me discuss this from an equipment financing sense. There are really two ways to look at it (both favorable to businesses):

The first way of looking at is in terms of “dollar worth”. In plain terms, if we have inflation, today’s dollars are worth more than tomorrow’s dollars. Make sense to you? Of course it does. So it’s logical to think that buying an item today (in the form of financing or leasing equipment), but paying for it with tomorrow’s “worth far less” dollars, is a nice proposition.

In other words, you pay for today’s equipment needs with tomorrows dollars, which are going to be worth less than they are today. So really, equipment financing (and equipment leasing) are solid hedges against inflation. And trust me – businesses know that. I personally have seen upticks in equipment finance applications every time there’s mention of inflation.

The second way to look at equipment financing as a hedge is simply in interest rates. Right now, rates are pretty low, and financing or leasing equipment is almost always done on a fixed rate basis. Hence, if you think inflation is coming (like I do), lock yourself in now for a low rate, because once inflation starts, interest rates will tick upward to control it.

Now, in all of the above, we get back to one basic premise – a little inflation will definitely spur business spending, as businesses clamor to take advantage of today’s (relatively) high-worth dollars and low interest rates. And higher business spending is good for the economy. So it’s kind of a win/win.

You know, in re-reading the above, I’m sure glad I paid attention in my college economics classes, and reserved my “goofing off” for Biology and things like that (because really, what does the inside of a frog have to do with anything?)

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