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Mining Industry Recovery Continues

The United States and Canada are seeing encouraging trends continue in the mining industry and the outlook for the remainder of 2019 and into 2020 appear to be on the same track.

Mining companies of all sizes throughout North America reported strong earningsand consistently increasing profit margins and cash flow for FY2018. Bouncing back from rough times prior to 2016, the mining industry continues to build on its recovery that has been fueled by robust macroeconomic fundamentals, large reserves and deregulation under President Donald Trump.

However, the driver for success is different from the past. There are still significant profits in the copper, nickel, lead, tin and gold markets, and things are looking better for materials such as iron and coal. The Trump Administration promised to save coal during the 2016 campaign, and for the most part he has succeeded, but as the country seeks alternative sources of energy time will tell how volatile the coal markets will become.

Mining equipment market growing at impressive rates.

The positive forecast for the mining industry is also impacting the Mining Equipment Market in a positive way as well. In 2017, the global mining equipment market size was valued at USD 120.82 billion, but with an anticipated CAGR of 11.7%, analysts are predicting the global mining equipment market will reach USD 284.93 billion by 2025 per Grand View Research.

With the demand for mined materials increasing at such rapid rates, mining companies both large and small are scrambling to improve and increase their machinery to meet the upcoming demand. Many mining companies are financing mining equipment, both new and used, and retrofitting their current fleets to increase drilling, extraction and exploration activities over the next few years.

Risk is still present and expected.

Even though the mining industry in North American looks positive, mining companies will continue to encounter tension over water usage from local communities, political uncertainty that can impact their operations across the globe and the general public’s attitude toward clean energy and sustainable business practices that will continue to impact the coal industry.

Overall, the outlook for mining in The United States and Canada is positive.

Yes, there are risks that the mining industry will face over the next few years, but the overall forecast for the industry looks stronger now than it has in a long time. Improving on a recovery that started back in 2016, the mining industry and the mining equipment market will continue to see massive growth for the remainder of 2019 and beyond.

 

*This article was originally posted on our Quora Blog on June 1, 2019

Who are the most active machine tool lenders?

Financing your machine tools is crucial for your business, especially if you rely on machine tools to complete most of your business tasks. But purchasing this type of equipment is going to be expensive as technology changes, which is why you have to study the market and identify which are the best options.

Thankfully, there are lots of companies that focus on financing machine tools. Finding the right financing partner is going to be a priority, as you want to get that machine as fast as possible. With that in mind, there are some options that you can take into consideration.

What companies should you choose for machine tool loans?

Each one of the financing companies mentioned has a different approach towards this market. According to the latest statistic data, it seems that lenders have around 400-500 filings for machine tools each month, at least that was the case in November 2017.

However, when it comes to the companies that actually delivered the necessary machine tool loans, these were CNC Associates, Banterra Bank, DMG MORI USA, Ellison Tech, and Hartwig. The thing to keep in mind here is that CNC Associates offered no less than 73 different financing opportunities to its customers.

Banterra Bank was in second place, but the reality is that they offered around half of the loans, or 39 in total. This shows that CNC Associates is a lot more productive and proactive on this type of market. It is an incredible opportunity for people that need machine tool loans, as they get to receive a rather impressive deal without that much of a problem. The other companies had around 32 loans each (Ellison Tech and DMG MORI USA) or 30 (in the case of Hartwig).

Another thing to note is that these top 5 companies had around 42.6% of the total market. Considering that there are more than 20 lenders focused on the industry, it is safe to say that most of the market is split between these 5 companies.

Which were the top machine tool buyers?

As you can imagine, these assets are needed by some companies, so which were the top buyers that used these machine tool lenders? Companies like Kennametal, TE Connectivity, Aerofit, C&C Machine Control as well as FMI Holdings were the major machine tool buyers, at least for the past few months.

Financing options are very important for all buyers, as it makes it easier for them to obtain high-quality results and improved efficiency. Plus, they don’t have to support the massive acquisition costs for such a tool right off the bat. They are free to wait a little bit until they get the results they want, and in the end, that can be quite helpful for their business. This is why machine tool lenders continue to be a very important part of the industry. Not only that, but both buyers and machine tool lenders benefit from a boost in sales in this industry.

Operating Lease vs Capital Lease

When companies need to purchase large machinery or equipment, operating or capital lease options are available as the type of leasing transaction for their books and records. There is a distinction between capital and operating leases and how it’s recorded for financial statement and tax purposes. Capital leases are deemed as if you own the asset. These assets are capitalized and depreciated depending on the useful life. Operating leases are not capitalized or shown on your balance. Operating lease payments are typically deducted from your income on your financial statements as an expense. Understanding the differences between the two can help you plan how the transaction is recorded on your books and records.

Capital Lease

Capital leases are also known as finance leases. In a capital lease transaction, the risk and reward of the leased asset is transferred to the lessee. When leasing an asset under a capital lease, it’s deemed as if you took a loan to purchase the asset so the asset must be shown on your balance sheet and depreciated.\

A lease must be considered a capital lease if any of the following are met:

  • The lessee has the option to own the asset at the conclusion of the lease.
  • If the transaction is a “lease to own” transaction.
  • If the lease term is over 75% of the useful life of the asset.
  • If the present value of the minimum lease payments required is at least 90% of the fair value of the asset at the inception of the lease.
  • If the lessee bears the cost of insurance maintenance and taxes.

Capital leases must be capitalized and shown on your balance sheet. Depreciation and other administrative costs of the equipment can be deducted.

Operating Lease

In an operating lease transaction, all the risk and rewards related to the machinery or equipment remains with the lessor. With an operating lease arrangement, the asset that is lease is considered an expense and is not shown on the balance sheet. For tax purposes, the lease payments are considered deductible when paid, so no depreciation deduction is taken. In most cases, smaller assets such as computers, TV’s, and other smaller cost assets are treated as operating leases.

 Certain criteria must be met in order for a lease to be considered an operating lease:

  • The equipment is returned to the lessor after the lease term which was agreed upon has ended.
  • The lease term is less than 75% of the useful life of the asset. For example, if you have a machine that has a useful life of 10 years, the lease term much be at most 7.5 years to be considered an operating lease.
  • The lessee must not have the option to buy the asset after the lease term.

Summary

Depending on the conditions of the lease transaction of your machinery or equipment, you can get different answers for financial statement and tax purposes. It’s important to understand the implications of expensing lease payments and deducting depreciation on a capitalized asset.

Equipment Leasing for Small Business

Today, small businesses are turning to leasing as the preferred way to acquire the equipment they need to help grow their business. Leasing allows you use the equipment, machinery or tools you need without having to deplete your cash or spend time looking for a conventional bank lender. But how does equipment leasing work? Will your business benefit from it and is it the right choice for your business?

How equipment leasing works

When you lease equipment, you are renting it in a similar way you rent an apartment. The collateral for the lease is normally the equipment and the down payment is usually just the first one or two payments - you are usually held responsible for the monthly payments for the duration of the lease agreement.

At the end of the lease agreement, you have the option to terminate or renew the lease or even purchase the equipment for market value. 

Benefits of Equipment Leasing

Here are four major reasons you consider leasing equipment:

  1. Control and conserve cash

Equipment leasing helps you to save working capital for daily expenses, business expansion and/or unexpected business related expenses. Also, you can sometimes structure your payments to meet your monthly, semi-annual or annual business cycles.

  1. Upgrade outdated equipment

Depending on the type of your business, equipment leasing will help you stay current with equipment and technology.

Also, if you plan to use the equipment for only a short time, you will find that leasing is a better option instead of buying and trying to resell when you no longer need it.

  1. Improve the balance sheet

Since monthly lease payments are viewed as an expense and not as a long term debt, you will have a smaller debt which means you can easily secure financing to fund your business.

  1. Potential tax benefits

Equipment leasing presents your small business with potential tax benefits, consult with your tax advisor.

Is leasing the right choice for your business?

When it comes to deciding whether to lease or not, you should focus on the equipment you want to acquire.

If you intend to use the equipment for only a short time, then leasing will be a better option. Also, if you are in a technology driven industry with a high equipment turnover, equipment leasing is the best solution.

Before you take the plunge, you should first examine the terms and conditions of the lease contract to know if it is the best decision for your business. If the overall cost of leasing helps you retain working capital and increases profits, then it may be a smart move for you.

At Viking equipment finance, we have flexible equipment lease programs that are designed by a team of professionals to meet your specific business needs. Whether you are looking to construction equipment or industrial tools and machinery, we can probably help you.

We have a history of helping both small and large business owners and can arrange leasing for most types equipment. We focus on larger scale deals that range between $1 million and $55 million.

Allow us to take care of the credit searches, approvals, paperwork and asset management allowing you to concentrate on your business. Contact us today and we will be happy to help.

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5900 S Lake Forest Dr., Suite 300
McKinney, TX 75070
Phone: 972-885-8899
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