Equipment companies are turning to rentals and leases for assets featuring advanced technology that carries a shorter lifespan.
“One of the trends that we’re seeing lately is that there is a preference to rent or lease items that are higher technology with a possibly shorter lifespan or possibly steeper evolution curve,” Ben Speed, vice president at Johnson Controls Capital, said during the Equipment Finance Connect webinar presented Jan. 24.
Johnson Controls Capital, located in Milwaukee, Wis., is the captive finance business of Johnson Controls. Johnson Controls Capital has funded more than $6B in customer projects worldwide, according to the company’s website.
“Older technology, established, long-life assets and heavy mechanical assets, those are the things that customers tend to want to own and finance,” Speed added.
Some companies have concerns about the lifespan of high-tech software or equipment, given that technology turns over at an accelerated rate, he noted.
“Whether you’re doing short-term, two-year or three-year leases, or maybe even doing five-year leases, a lot of times that technology may be functional after that, but you’re going to want to upgrade,” he said. “They’re going to want the latest and greatest. We found that renting or leasing is a great way for owners and businesses to manage that capital stock while stretching out the financing for things that are going to have a longer life.”
In terms of mechanical and other long-term assets, companies continue to buy or finance assets, according to Speed.
“From a mechanical standpoint, if you know you’ve got an asset that may last 10 years or longer, they’re likely going to want to be able to own that asset well beyond the amortization term because it’s got so much life to it,” he said.