Can we discuss rates, economics and equipment investment for a minute?
There is this quote about the stock market that resonates with me: “Time in the market beats time in the market.”
The meaning behind the quote is simple: there is no point in trying to “time” the stock market. If you want to get involved, get in there and don’t worry about external factors like the economy, interest rates, sad news or whatever. Just get out whatever it is. Time at the rhythms of time.
I think this same quote and the meaning behind it is also useful in the construction industry. As someone who has been familiar with equipment financing for nearly two decades, I think about the customers who have financed equipment whenever they needed it, and those who didn’t because they were financially scared. In almost every case, those who move forward in any economy are the greatest successes, while those who are always tentative are not.
So why talk about it in the first quarter of 2024? Well, we’ve just gone through a year and a half of rate hikes, half a year of “will they or won’t they raise again” speculation, endless recession predictions, and contentious presidential elections looming.
In other words, it’s the PERFECT opportunity for construction companies, especially newer ones that haven’t been through years of economic turbulence, to reason for growth. Which, in almost any scenario, would be a mistake.
Let’s go over some reasons why companies put off acquiring necessary new equipment and my answers to them:
“Rates may drop later”
I will be blunt: significant rate drops occur over a period of time measured in years, not weeks and months. If rates fall this year (and it’s questionable if they will), they will do so by 25 basis points at a time. If we’re very lucky, we might get three cuts of this magnitude this year.
Even if that happens, the fee you’ll pay won’t make a big enough difference to matter, especially if we’re talking about buying equipment that generates income when you really need it. Generally speaking, on a five-year equipment loan for a backhoe, 75 basis points can mean several hundred dollars total over the life of the loan. Heck, many companies will use this backhoe to win it in an afternoon.
If the team you’re considering is going to generate revenue, and we’re not talking tens of millions of dollars in funding, the “rate math” is overwhelmingly in your favor. Don’t let pennies cost you (big) dollars.
“The recession is coming”
Oh look, that again.
I heard the same thing all through 2022. Then all through 2023. And I’m still hearing it. The thing is, the dumpers are technically right: given our entire economic history of long periods of growth and brief recessions, a recession will finally arrive And as long as he does, we’ll soldier on as always. But turning turtle and approaching prediction (which is never-ending in today’s 24/7 news cycle) is silly. The sad part is that there are companies that sat out all of 2023 waiting for a recession that never came.
“But the election…”
What’s up with that?
We have a presidential election every four years, and every four years they say it’s the most important in history. OK then.
Seriously, whoever wins, about half the country won’t like it. And in the following years, whoever is elected, there will be economic peaks and valleys, as there always are.
We have let politics rule too much of our lives, families and friendships. Don’t let this affect your business either. Ignore your social media channels.
wrapping
For me, it all comes down to necessity. If you need a team to function, generate revenue, or grow, you need it. Trying to time things by predicting something as unpredictable as the economy is silly. And expecting a rate cut of 25 basis points is even more foolish.
Quick note: This doesn’t mean ignore everything. For example, if your state is about to pass a regulation that will affect how and where you work, then yes, you need to pay attention to that. But aside from the obvious, general chatter and doom and gloom should be largely ignored.
In the end, if it’s time to grow up, it’s time to grow up. And you should heed that call. This is what being an entrepreneur is all about.
All opinions expressed in this article are those of the author and do not necessarily represent the policy or position of Crest Capital and its affiliates. These views are also an opinion – always speak to your accountant or tax professional before engaging in any financial contract or tax matter.
