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Equipment Lending – Financing the Physical Economy

Of the billions of dollars in capital used by U.S. business in any given year, a significant portion is spent on the purchase or leasing of equipment. As much as our daily lives are spent in the digital world, our environment is fundamentally physical, and the health of the economy can in many ways be measured by the pace of investment in physical goods – atoms rather than bits. In today’s post, we will explore recent trends relating to investment in equipment and manufacturing and discuss how such investment might be financed in the future.

 

Industrial Production: Manufacturing

 

In the chart below, we see the volume of manufacturing activity in the United States over time, indexed to 2007 levels. While there was a significant drop during the last recession, manufacturing has been on a steady climb ever since. As consumers and businesses foreign and domestic show even greater demand for American-made goods, the volume of production needs to increase, and despite the ever-present fear that the best days of U.S. manufacturing are behind us, the chart below paints a far more optimistic picture.

ipman

 

Investment in Construction and Agriculture

 

It is no surprise that food and shelter comprise such a large volume of equipment-related investment in our economy, particularly during periods of strong growth. As we can see in the graph below, investment in this area is at an all-time high.

cons_argi

 

Investment in Medical Equipment and Instruments

After food and shelter, people need to stay healthy and get healthy. With a growing population, longer lifespan, and advances in medical technology, the purchase of new medical equipment is a large and growing industry. We can see this trend in the chart below. With the most advanced CAT scan machines costing up to $2.5 million, this type of purchase typically requires financing of some kind.

med_equip

 

Growing Our Economy Through Marketplace Lending

With large and growing markets for medical, construction, and other types of equipment, it is not hard to appreciate the scale of the need for equipment financing solutions that are well-priced, well-structured, and offer a compelling value proposition for the borrower and lender alike. Over the past several years, marketplace lending has demonstrated its usefulness in providing borrowers with competitive rates as well as a streamlined application and fulfillment process, most notably in the area of consumer loans. While such benefits are clearly appreciated by consumer borrowers, they may be even more relevant to businesses needing to finance equipment. Commercial finance can be a complex and time-consuming process, and the speed with which a business can get its loan funded and start using the new equipment has a direct impact on its bottom line. Online and automated loan application and underwriting processes can be extremely valuable in this arena, and a diverse marketplace of institutional investors holds the promise of faster funding at competitive rates. Over the next couple years, we expect to see a marked increase in the application of marketplace lending strategies to commercial equipment finance and hope that this will play a key part in our nation’s continued economic growth.