Rita E. Garwood,
Editor in Chief ,
Monitor
The equipment finance industry demonstrated resilience and adaptability in 2024, navigating economic headwinds, regulatory changes and heightened competition. Banks played a pivotal role in these developments, with some scaling back operations and others expanding their presence and reinforcing their commitment to the sector. This article explores the key trends, challenges and opportunities shaping bank activity in equipment finance over the past year.
The economic landscape in 2024 was shaped by lingering effects from the banking turmoil of 2023, elevated interest rates and tighter liquidity. Despite these challenges, the Bank 50 report revealed that banks collectively grew net assets by 2.3% to $304.3 billion in 2023, showcasing the sector’s resilience. Originations dipped by 3.5% to $97.5 billion, reflecting the cautious stance many banks adopted amid rising funding costs and tightening credit conditions.
Top players, including Bank of America and Wells Fargo, maintained strong positions in the rankings, while institutions like EverBank leveraged the year’s challenges as opportunities. EverBank continued to report growth and launched a new Corporate Asset Finance division, led by Maureen Carr, to strengthen its position.
“EverBank leaders view our equipment finance business as a stable, predictable and profitable channel for growth.” Justin Tabone, senior vice president for EverBank Vendor Equipment Finance, says. “Equipment finance is valued as a strategic pillar of the bank and bank leaders appreciate that VEF is a mature business celebrating its 20th anniversary this year. We have a highly experienced team that has longstanding relationships with the top manufacturers and distributors in the industry segments we serve.”
Mergers and acquisitions remained a key theme in 2024, with regional banks consolidating to achieve economies of scale and streamline operations. Notable examples include:
Several new entrants joined the Monitor Bank 50 rankings in 2024, underscoring the continued appeal of equipment finance despite economic uncertainties:
Additionally, several banks entered the equipment finance industry for the first time in 2024:
While these new players expanded their presence, others consolidated operations to cope with economic challenges and rising capital costs.
Banks implemented stricter lending criteria for equipment finance transactions. The Federal Reserve’s Senior Loan Officer Opinion Survey (SLOOS) for Q1/24 indicated that 15.6% of banks tightened standards for commercial and industrial (C&I) loans to large and mid-sized firms, up from 14.5% in the previous quarter. This trend persisted in Q2, with 7.9% of banks reporting further tightening, though at a reduced pace.
At the same time, delinquencies and charge-offs showed signs of increasing. Data from the Federal Reserve’s Charge-Off and Delinquency Rates on Loans and Leases at Commercial Banks indicated a rise in delinquency rates for various loan categories in Q3/24 compared to the same period in the previous year.
The equipment finance industry also saw increases in delinquencies and charge-offs. Data from the Equipment Leasing and Finance Association revealed that charge-offs rose by 70 basis points quarter-over-quarter in Q1/24 and by 170 basis points year over year.
Delinquency rates peaked at 2.5% in October 2023 before slightly declining to 2.1% in Q1 2024. These figures align with Federal Reserve data showing a rise in delinquency rates on lease financing receivables among commercial banks.
These developments reflected a cautious approach by banks in response to economic conditions, aiming to mitigate potential risks associated with lending in a slow-growth environment.
Section 1071 mandates that financial institutions collect and report data on small business lending, including demographic information about applicants. This requirement aims to facilitate fair lending practices but imposes substantial compliance burdens on banks and other small business lenders.
While U.S. banks are not currently mandated to adhere to comprehensive ESG reporting frameworks at the federal level, ESG considerations are increasingly influencing the financial industry due to market expectations, investor pressure and specific regulatory developments.
Internationally, banks faced increasing pressure to adhere to ESG standards, which require transparent reporting on environmental impact, social responsibility and governance practices. The International Financial Reporting Standards (IFRS) introduced standards S1 and S2, compelling companies to provide detailed disclosures on ESG activities. Compliance with these standards necessitated significant investments in administrative processes, staffing and financial resources.
For banks with equipment finance divisions, aligning with ESG criteria involved integrating sustainability considerations into lending practices and investment strategies. This shift required the development of new policies and the implementation of robust data collection systems to ensure accurate ESG reporting. The complexity of these requirements posed substantial operational challenges, especially for institutions lacking prior experience in ESG compliance.
The dual pressures of Section 1071 compliance and ESG reporting compelled many banks to invest in technology and process enhancements to meet regulatory expectations. These investments were essential to ensure transparency and adherence to the evolving regulatory landscape. However, they also increased operational costs and required significant organizational changes, affecting the overall efficiency of equipment finance operations.
Private credit funds stepped into the equipment finance space to address funding gaps left by traditional banks. These funds provided essential liquidity for large-scale equipment purchases, offering borrowers alternatives to traditional syndication routes.
The shift from bank-led syndications to private credit funding had several implications:
Pricing Dynamics: Private credit funds often command higher interest rates compared to traditional banks, leading to increased borrowing costs for equipment finance clients.
Deal Structuring: Private credit providers typically offer more flexible terms, which can be advantageous for borrowers seeking customized financing solutions.
Market Competition: The growing influence of private credit funds introduced new competitive dynamics, prompting traditional banks to innovate and adapt their offerings to maintain market share. In some cases, banks have begun to collaborate with private credit. In 2024, Citi partnered with Apollo Global Management to launch a $25 billion private credit and direct lending program.
These evolutions underscore the importance for stakeholders in the equipment finance industry to adapt to the changing funding landscape, balancing the benefits and challenges presented by the rise of private credit funds.
Amid a competitive and uncertain market, many banks leaned into technology to strengthen their foothold.
“Technology is playing an increasingly important role in vendor equipment financing, and we’ve made technology innovation a continuing priority,” Tabone says. “We are refining our digital solutions to bring a fully automated, wing-to-wing experience to our vendor partners and their customers. Our digital journey is focused on becoming an integral part of our vendor partners’ sales process, whether that be through API connectivity, digital quoting tools or eDocs.”
Leaning into technological advancement aligns with broader industry trends emphasizing speed, efficiency and customer experience. Banks that invest in technology to improve operational efficiency and customer experience position themselves for long-term success.
High-growth industries like healthcare, technology and renewable energy offered lucrative opportunities in 2024. By aligning their portfolios with these sectors, many banks tapped into sustained demand and achieve stable returns.
Strong vendor relationships remained a cornerstone of successful bank equipment finance strategies. Banks that collaborated closely with manufacturers and distributors to provide tailored financing solutions gained a competitive edge.
“EverBank is highly supportive of our equipment finance business and plans to continue investing in its growth,” Tabone says. “VEF will be opportunistic by onboarding vendor programs that may have been impacted by disruption in the marketplace and are a good fit for our equipment financing platform.”
As the equipment finance sector approaches 2025, the incoming Trump administration’s policies are poised to significantly influence the industry’s trajectory. Key considerations for banks include:
Deregulation Initiatives: The administration is expected to pursue financial deregulation, potentially easing capital requirements and oversight for banks. This could enhance banks’ capacity to extend equipment financing. However, reduced regulatory scrutiny may elevate systemic risks, necessitating careful risk management.
Leadership Changes in Regulatory Agencies: Anticipated appointments of industry-friendly leaders to agencies like the Federal Reserve, FDIC and OCC could lead to a more lenient regulatory stance, potentially accelerating bank mergers and acquisitions.
Trade Policies and Tariffs: Proposed tariffs on imports from countries such as China, Mexico and Canada may disrupt global supply chains, impacting sectors reliant on imported equipment. This could lead to increased equipment costs and affect financing demand.
Tax Reforms: Potential corporate tax cuts aim to stimulate investment in capital goods, potentially boosting demand for equipment financing. However, the specifics of these reforms remain uncertain.
Market Dynamics: Deregulation may intensify competition among banks and non-bank lenders in the equipment finance market. Traditional banks might face increased competition from fintech firms and private credit funds offering alternative financing solutions.
Monetary Policy Uncertainty: The administration’s fiscal policies could influence Federal Reserve decisions, affecting interest rates. Fluctuations in rates will impact borrowing costs and demand for equipment financing.
Risk Management: In a potentially deregulated environment, robust risk assessment protocols are essential to mitigate exposure to market volatility.
Technological Investment: Leveraging digital platforms can enhance operational efficiency and customer engagement, providing a competitive edge.
Market Diversification: Exploring emerging sectors and alternative financing models can help banks adapt to shifting economic conditions.
“Competition will continue to grow for digital solutions that bring robust point-of-sale financing solutions to customers while meeting bank funding requirements,” Tabone says. “Implementing sufficient controls to comply with Section 1071 while efficiently operating the business will also be a challenge for many banks. Bank lessors will also be pushed to develop consumption-based financing models that both meet their customers’ needs and can be operationalized.”
Banks navigated a complex landscape of economic challenges, regulatory pressures and competitive shifts, with some institutions scaling back while others invested in growth and innovation. The year’s developments highlight the importance of strategic focus, technological integration and strong relationships in maintaining competitiveness.
As the industry looks to 2025, it remains clear that equipment finance will continue to play a critical role in supporting businesses across sectors. Banks that prioritize innovation and align with market demands are well-positioned to lead the way into the future.
No categories available
No tags available
