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! 

• First up on my list is always Section 179. But I really don’t need to put it here anymore, because it was made permanent in 2017. Still, I’m used to having it high on my list, so I’ll wish for it to grow even larger!

(oh, and remember to use your Section 179 deduction for 2020! You have until midnight 12/31 to buy or finance your equipment and put it into service.)

• I want rates to stay right where they are. They are historically low right now, and I hope they stay there. Of course, I know this truly is a “wish”, as rate fluctuations are inevitable, but let’s hope they are slow (prediction: any increases will be slow indeed). 

• I wish for more equipment sellers and distributors to see how offering financing can help them. As we move forward, making things simple and being a “one-stop-shop” for B2B customers can only help. I feel a beefier blog post about this coming on.  

• Like everyone else, I want us to have a virus vaccine. It looks like that might be imminent. Good. I suspect after that happens, there will be a mini boom. Get ready for it. 

• On a personal level, I got into vinyl records awhile back, and would like a new turntable this year. Mrs. Fletch said “pick another gift – things are too loud around here as it is”. What is this “too loud” she speaks of? Not in my vocabulary. 

The holiday season is always pretty busy for everyone. But it is also a good time to take stock in the year that was, and the road ahead. Despite the turmoil of 2020, I am optimistic about 2021, and what lays ahead. We’re all fortunate to be in business, and while we cannot control outside forces, we can control how we react. 

Enjoy the next few weeks – they’re always fun!

The reasons are many, but the big one is stability. Knowing what your monthly payment is going to be for the entire term of your equipment loan is important. It allows companies to better forecast and plan ahead; it allows them to set budgets more accurately; and it allows them to know exactly what a piece of equipment will cost.

Fixed rates for equipment financing can also be a hedge against rate increases, which are never well-received. It’s interesting that rate drops are never seen in quite the same light. For example, if I take out a loan, I am obviously ok with the payment. If rates go down a slight percentage, I might say “hmmm, would have been nice if they dropped last month when I financed, but oh well…” and I move on, not thinking about it again.

But if rates rise, and I’m comfortably locked in at a lower rate? Heh, then I’m imagining myself as a financial wizard, and probably won’t shut up about it.

Conversely, adjustable rates are a real roller coaster. Sure, if you get in at the exact right time and rates start falling, you’re going to be happy. But those perfect times are few and far between. And never mind rates rising and your payment going up – that will give any businessperson sleepless nights. 

The bottom line is adjustable rates are risky, and can really hamper a company if they go up. You certainly wouldn’t BUY a piece of equipment from a vendor that said “right now the price is this, but if we feel like it later in term, we’ll raise it to that”… so why would you finance under that same scenario?  

Nope, the jury is back in record time: fixed rates are better for equipment financing. Fletch has spoken.