The Next Stage Of The Cycle: A Return To Leasing

by Rita E. Garwood Monitor 100 2024
We are facing another turning point in the business of financing equipment. Professionals who can adapt to today’s market conditions to create inventive leasing options for their customers have a unique opportunity to create meaningful opportunities for everyone involved.

Rita E. Garwood,
Editor in Chief,

The business of financing equipment has evolved over the years. In the early days, equipment-centric leasing with structures tailored to a customer’s unique needs were the norm. But as the industry grew legs and established its legitimacy, a shift took place, which Paul Bent from The Alta Group summarized in Monitor’s 50th anniversary issue:

“…the equipment leasing industry over time took on a lot of the airs of . . . well, banking. Rather than thinking in terms of equipment, equipment values, equipment refurbishment, equipment sales and specialized equipment markets, a large portion of the industry seems to have morphed into thinking primarily in terms of syndication opportunities, borrowing rates, credit methodologies, funding cost, securitization implications and such. Actual equipment sometimes feels like an afterthought — the collateral that you’ve got to have, but you hope you never really have to deal with.”

Today, we face another turning point. Inflation has elevated asset values and left the Fed reluctant to lower interest rates that are at a 23-year high. Banks, the dominant force in equipment finance since the breakdown of GE Capital, are pulling back with nearly 58% decreasing their year-over-year volume in 2023. For the first time since 2016, the No. 1 companies in the Monitor 100 asset and volume rankings are not banks.

The tide is shifting, and we are entering the next phase of the industry’s evolution. Results of a Q4/23 Sawbux Greenwich Study of Commercial Finance Activity of more than 1,300 middle market CFOs demonstrated that the percentage of CFOs willing to consider operating lease solutions for equipment and technology capex increased to an average of 23% across all sectors in 2023, up from an average of 10% in 2018.

During a recent meeting, several members of the Monitor Editorial Board stressed the important task Monitor faces today: helping each segment of the equipment finance ecosystem adapt to this new reality. “The industry must begin thinking about repricing of risk and reeducating a sales organization about the benefits and merits of selling FMV products,” a board member said.

Many salespeople in our industry today have not been educated on the ins and outs of fair market value leases. Unlike leasing professionals 30 years ago, they don’t have the skills to lead a customer to true leasing products, which have clear benefits for both lessors and lessees.

According to a recent Monitor Suite article, the average CFO in the U.S. is 44 years old, the average small business owner is 37 and the average age of equipment finance salespeople is 34. Many of these key players have never experienced an economic environment that underscores the power of leasing.

Equipment finance professionals who can adapt to today’s market conditions to create inventive options for their customers have a unique opportunity to create meaningful opportunities for everyone involved — and significant profit for their organizations. The time to educate your teams — and your customers — on the benefits of leasing has arrived. Will you seize this opportunity?•

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