Many predicted these hikes, and if comments by pundits and economists are to be believed, rate hikes will continue for the foreseeable future. 

That said, rising interest rates are not all doom and gloom. In fact, savvy companies can make it work for them. And that’s because, all else being equal, the Fed raising rates works both ways. Yes, you pay more for the money you borrow, but you also generally earn more on your money in the bank. 

Note: I do realize the “value of a dollar” factors into things in a big-picture sense, but this would be true regardless of where your money is, so I prefer to focus on raw numbers – the number you pay out, and the one you get paid. 

This can work well for you in several ways, and honestly, it mixes quite well with equipment financing.

Locking in fixed-rate equipment financing now (while keeping your own money in the bank) can work out well when rates go up. Not only are you already locked in at a lower rate on your payment, but the money you kept in the bank is now earning more. This could be substantial as the dollar figures (and rates) rise, but at any level, paying a lower rate out while earning a higher rate in has no downside.

This also works very well with Section 179. If you take a full deduction, the money from the tax savings stays in your bank account. As rates rise, just by sitting there, that money works harder in a raw numbers sense. I realize some companies may still like to depreciate annually, but in a “rising rates” climate, many will feel it’s more advantageous to take it all in one lump sum and let those higher rates do their thing.  

Rates going up are not smiled upon by businesses, but they are an unavoidable fact of life right now. And with a little planning, you can definitely make this work better for you. 

Lock in low, keep your own money in places that get higher rates, take deductions, add the deduction money saved to the “keep” pile, and keep reading The Lease Guy! 

Most of you would say $5,000 right now, which is the correct answer. There are a lot of reasons why most people feel this is the correct answer. One reason being $5k now gives you more options today; another reason is we have no idea where we’ll be in five years, so take the $5k now.

But to me, the best reason is TVM, otherwise known as the Time Value of Money. In plain terms, the theory is money today is always worth more than the same amount of money tomorrow.

The primary reason for this isn’t based on complicated economics or the value of the dollar or whatnot – it’s simply due to compounding periods. Giving me $5,000 now theoretically allows that $5,000 to grow upon itself. So if I had a time machine, I could jump forward a few years and see that my “past” $5,000 is worth more than “right now” $5,000.

**Full disclosure – If I had a time machine, I would not be using it to check my bank balance. I’m not that boring. 

So let’s talk about money now as opposed to money later for businesses. The best example I could give you is taking a full Section 179 deduction, as opposed to yearly depreciation.** Taking a deduction on the full purchase price of equipment right now allows you to put that sum to work for you. The money you save/keep is going to be worth more than a like amount years from now. And it’ll be worth more than a little at a time for years. 

This goes double when you finance a Section 179 purchase. You get the deduction, and you also keep the money the equipment would have cost you in the bank, and instead make payments. TVM works for you here too.

Give me the money now as opposed to later. Section 179 does exactly that. And TVM makes it even better.** Note: of course, always discuss with your accountant or tax professional.

For example, if I’m talking about rates or similar, I’ll stress the importance of locking financing in with fixed rates. Recently, as 2021 progressed onward and eventually gave way to 2022, I’ve mentioned inflation more than once, and have stressed that financing can be used as a hedge against rising prices. 

But it occurred to me that I’ve never really highlighted these reasons in and of themselves. I’ve always discussed them as a secondary piece to another topic, which is fine, but for now and the next few posts, I’d like to highlight some of the reasons to finance by themselves. Here are a few off the top of my head that will make an appearance over the next few weeks:

• Using Equipment Financing to take advantage of new technology.
• Using Equipment Financing to keep your own funds liquid.
• Using Equipment Financing as a hedge against inflation.
• Using Equipment Financing to keep pace with your competition.
• Using Equipment Financing to stay ahead of your competition.
• Using Equipment Financing and Section 179 (ok, I’ve done this one a lot in this blog, but I’ll still include it at the end.)

Notice that these are all fairly specific, and I’m not using a generic “use equipment financing to help your business grow”. That’s because all of these can (and will) help your business grow. 

Some of these ideas and thoughts may overlap a little as well. For example, isn’t “take advantage of new technology” somewhat similar to “stay ahead of the competition”? Yes, it is. But since the beginning mindset / reason is different, they each deserve their own post. And once I give an example or two of each, it’ll be pretty clear they are different enough.    

Stay tuned for more.