Brianna Wilson,
Managing Editor,
Monitor
Suite is Monitor’s premium platform for the data, insights and research designed to help make better business decisions. Of the nearly 160 articles and videos posted to the website through the first three quarters of 2024, a number of themes emerged within the most popular stories among the platform’s readership. This article outlines these key themes and shares takeaways from the most popular stories posted to Suite this year.
Basel III Endgame
Of particular interest to Suite’s audience was the Q3/24 story, “Basel III Endgame Looms.” Basel IV — often referred to as Basel III Endgame — is on track to take effect next year, and will likely kickstart a journey of tighter capital requirements. Of the many high-level takeaways and potential negative effects on business lending, highlights include:
These impacts, among others, are just the beginning — so Basel IV may not be “endgame” after all. And, although Basel IV is designed to strengthen the banking system’s overall stability and resilience, its implementation may ultimately have unintended consequences.
CapEx Investment by Sector
Two Suite stories address capital expenditure (capex) investment in specific sectors: healthcare and manufacturing. Each article, posted between Q2/24 and Q3/24, covers areas of capex spending and powerful insights into the market.
Understanding capex trends is crucial for stakeholders navigating the complex landscape of the healthcare industry. “Healthcare CapEx Spend by Major Sector” explored the most active areas of investment and examined how these historical spending patterns might shape or otherwise suggest future financial commitments. Capex spending in hospitals retreated, but expanded in ambulatory surgery centers, radiology, oncology and laboratory services.
Similarly, “CapEx and Manufacturing,” provided insightful charts and trends for capex spend in manufacturing. Major takeaways for the equipment finance sector include manufacturers’ tendency to invest in property, plant and equipment to support ongoing expansion, and manufacturers’ likeliness to explore operating leases and structured finance solutions amid budget constraints.
CFO Insights on Operating Leases
In two Suite by Monitor stories, separate groups of chief financial officers (CFOs) commented on why they were considering operating leases, specific cases where they used operating leases and how these leases were helping them navigate challenging times.
In “CFO Consideration of Operating Leases,” which included a survey of more than 1,300 mid-sized company CFOs designed to reveal how operating leases may be evolving, three different CFOs — one from a data center, one from an oil field services company and a healthcare provider — summarized that operating leases are on the rise due to the economic environment, the rising costs of equipment and technology and tighter financial conditions. Their comments identified operating leases as a serious considering for mid-sized companies — time will tell whether or not this is a passing trend given the economic climate, or if these leases are here to stay.
In “How 3 CFOs are Powering Automation Investments,” three CFOs — one from a food and beverage manufacturer, one from an auto manufacturer and one from an advanced robotics manufacturer — summarize that operating leases mitigate risk in some areas, improve cash flow and enable the ease of equipment upgrade. In all, the article concludes, for mid-sized manufacturers looking to invest in automation, operating leases offer a practical approach to achieving operational excellence in a market that remains uncertain.
Additional Equipment Financiers’ Insights
Executive insights are, generally, a popular type of Suite story, with three additional insight-centered articles making it into our readerships’ most engaged list.
“What Two Trucking CFOs Think About TRAC Leases as a Potential Solution” included insights from the CFO of a Midwest-based refrigerated carrier, who highlighted the critical role that TRAC leases play in navigating economic hurdles, and the CFO of a national specialized character, who underscored the strategic advantages of TRAC leases.
“What Middle Market Trucking Companies are Saying About Access to Capital” summarized a survey of more than 1,100 companies about capex intent for transportation equipment buyers. The article included insights from the CFO of an Ohio-based carrier, who said their company’s priority strayed from funding capex needs and comments from the CFO of a Tennessee-based carrier who said their company was making a “bold return” to TRAC leasing. Another CFO of an Arizona-based carrier said their company was unlikely to keep both capex and working capital under their roof in the future. A final CFO of an Illinois-based carrier agreed that their company could no longer sit on their capex needs.
“Vendor Finance Frustrations” took a deep dive into the frustrations and realities commercial equipment sellers are facing in the vendor finance industry. The CEO of a construction equipment dealership observed a stark change in the way customers are thinking about buying equipment and commented on the steep incline of new equipment cost. An executive sales leader for a transportation equipment dealership said customers shifted from buying new fleets to purchasing used ones or stretching the use of older trucks that are already on the road. The CEO of a national machine tool dealership shared that customers are pulling back from owning machines that they don’t consistently use.
Technology and Innovation
Two related articles, “The Innovation Paradox in Equipment Finance” and “Commercial Equipment Finance and the Slow Adoption of AI” reveal a key issue in the crossover of innovation and equipment finance — the industry is slow to adopt and, perhaps more importantly, stick to new technology solutions. Oftentimes, we see innovative startups disrupt the market and achieve success. Then, when that company is required, their innovative strategies are diluted by the, often banking, institution that acquired it. This cannot keep happening. With AI rapidly becoming more intelligent and customers expecting even quicker answers, approvals, everything, equipment finance firms need to adopt and maintain viable technology solutions — or risk being left behind.
Another article, “The Automation Imperative for Manufacturers,” carries a similar narrative focused on manufacturers; right now, they are under immense stress to maintain profitability as they face pressures from rising input costs, labor shortages and increased competition. Creative financing (an increasingly crucial tool enabling manufacturers to invest in transformative technologies, notably without compromising cash flow), where flexibility meets innovation, comes into play for many of these under-pressure manufacturers.
“Shifting the Blame” sums up nicely why innovation keeps failing: business process failures — not technology — hinder the return on income of technology. This article outlines scenarios where, and why, innovation fails, and scenarios where, and why, innovation is successful. It also suggests a number of things to consider before embarking on the implementation of a new technology, i.e. conducting a process audit, standardizing across teams and more.
“Is Salesforce Still Worth It for Commercial Equipment Finance Firms?” isn’t exactly an article about Salesforce being an unideal platform for equipment finance company. Rather, it’s a challenge for equipment financiers to really look at how they’re using Salesforce and evaluate whether or not they’re getting the most bang for their buck. As of now, Salesforce is the customer relationship management platform for firms across the industry, but, given the rising costs and deepening complexity of the platform, many firms are truly only scratching the surface of what Salesforce can do. Is your firm using Salesforce to its full capability, and making the investment worth all it can be?
Herein lies another emerging technology: “Fractional Commercial Equipment Ownership with Blockchain.” Again, this article discusses how often innovation and technology take a backseat when tight budgets and short-term strategies are dominated equipment finance firms. However, Blockchain is on the rise, and though many firms are still pushing it off to the side, it’s only a matter of time before it can no longer be written off as ‘irrelevant.’ The implementation of blockchain opens up new possibilities, such as asset tokenization — a process that digitally represents ownership of physical assets on the blockchain — which unlocks fractional ownership models and has the potential to revolutionize the way companies access and use these assets in the future.
The Expanding Construction Market
Throughout the year, Suite dove into the construction market from varying angles.
In Q2/24, Secured Research engaged over 3,000 construction companies about capex intent for technology equipment buyers, and reported its findings in “An Overlooked Equipment Finance Opportunity.” Secured Research found that companies reported increases over 30% in ruggedized laptops, GPS and surveying equipment, asset tracking and telematics, cameras and drones, security and surveillance and power and charging. Evidently, construction companies are upping their focus on streamlining workflows, improving productivity, enhancing safety and delivering projects on time and within budget using the newer technologies, as well as the Internet of Things.
“Construction Equipment Vendor Application Flow is Diverging from Approval Rates” reveals an intersection of opportunity for growth in construction equipment finance given rising inventories and an increasing number of contractors seeking capital. The article reads, “The construction equipment finance sector may well be at a pivotal juncture in 2024 as other asset classes begin to experience the effects of economic challenges. Monitoring data on approval trends and vendor application volumes will be essential for industry stakeholders to navigate this evolving landscape effectively.”
“The Business Case for Construction Equipment Finance” covers the rise in government spending and the prominent legislations that fuel growth in construction, such as The Inflation Reduction Act, The CHIPS and Science Act and the American Rescue Plan. The article also covers the equipment finance implications of this uptick in spending and legislation, given the opportunities available in this expanding sector when so many others are under pressure.
Billion Dollar Bets
In Q3/24, Suite introduced a research article series that explores the challenges and equipment investment trends in various sectors. Below is an outline of sectors covered so far and a key takeaway from each article:
Other Trends, Considerations and More
Some of Suite’s most popular stories fall under this ‘miscellaneous’ category, from questioning readers whether their investment in certain technologies is worth it, to trends from other areas of the industry.
“The Shift from Traditional Financing: A Cautionary Tale for Equipment Finance Companies” outlines why small business owners are increasingly looking to alternative financing, sharing the stories of two small business owners (one, of a mid-sized baker, and the other, of a construction company) who turned to online fintech users to meet their equipment needs. Both small business owners started on the traditional financing route but felt frustrated by their lenders’ limitations — thus, they turned to the Internet and discovered fintech lenders that offered quick approvals, flexible payment options and competitive interest rates. The article wraps up with key takeaways for equipment financiers: flexibility is key, and speed and convenience matter, especially to small businesses.
“Why More Independent Commercial Finance Companies are Rebranding as ‘Private Credit’” covered a trend, as of October 2024 — more and more independent equipment finance companies are rebranding as “private credit” companies. Why? Many of these companies consider it a strategic move that reframes their value proposition, especially when working with a market that values flexibility and speed. The term “private credit” is associated with these benefits, and often seen as a dynamic and fresh capital solution, whereas independents often can’t shake the market perspective of being alternative of fringe lending. Plus, many independents don’t believe there are fundamental differences between their firms and a private credit one, thus the rebrand is only beneficial to how their business is perceived by the market.
The Fed’s comments at Jackson Hole left equipment financiers at a pivotal point. “Should Equipment Financiers Ramp Up Marketing After Jackson Hole?” was written and published before the Fed’s official announcement that rate cuts were coming, and it addressed a number of implications a rate cut decrease would have on the industry (lower borrowing costs, pent-up demand, economic optimism) as well as unique opportunities for equipment financiers. Related to these unique opportunities, the article outlines marketing strategies and messaging that equipment finance companies could use to capitalize on the opportunities, such as showcasing ROI models, emphasizing flexibility and building industry-specific campaigns.
The article, “The Impact of Rising Rates, Struggling Efficiency Ratios and Deposit Gathering Necessities on Credit Availability,” is a primer surrounding the implications of a 525bp increase in rates in just over a year. And, although this article was written and posted in May 2024, long before the interest rate cut, it is still a valuable article exploring how such an increase in rates can tighten credit availability, negatively impact bank efficiency ratios and hinder deposit gathering, all of which ultimately shape the lending landscape by tightening credit and slowing economic growth, among other impacts.
Stay tuned into Suite by Monitor, suitebymonitor.com, for continued exploration into the data, research and insights needed to make better business decisions. Feedback and suggestions are welcome; please email [email protected].
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