For the first time ever, the equipment finance market is expected to surpass $1 trillion in 2015, according to 2015 State of the Equipment Finance Industry Report released at the 54th Annual Convention of the Equipment Leasing and Finance Association.

The study, published by the Equipment Leasing & Finance Foundation and authored by Keybridge Research, provides a look at trends in the equipment finance industry over the past year, identifies key drivers for future growth and explores emerging opportunities and risks that could shape the industry over the next five years.

“There is cautious optimism among industry participants as the equipment finance industry seems to be entering a new phase of solid albeit slower growth,” said Richard Gumbrecht, chairman of the ELFF and chief growth officer of EverBank Commercial Finance. “There are a number of shifts underway, including evolving customer preferences, the growing popularity of alternative financing, volatility in global commodity markets, the prospect of rising interest rates, and new lease accounting standards that, while challenging, also present equipment finance companies with new opportunities for growth.”

Key findings from the report include:

• The equipment finance market is projected to reach $1.046 trillion in 2015. A slowly improving U.S. economy contributed to moderate equipment and software investment growth of 6% in 2014. Amidst this backdrop of moderate investment growth, equipment finance new business volume grew 6.7% in 2014, still remaining above the 10-year average of 4.4%, and driving the industry size to $946 billion.  The equipment finance industry is exhibiting stable expansion so far in 2015. Overall investment in equipment and software has been modest over the first half of the year due to the waning replacement cycle and businesses’ continued hesitancy to expand their operations
• Record-level portfolio strength has defined the equipment finance industry in recent years, and a healthier economy and rising corporate profits allowed companies to maintain strong portfolios in 2014.  On the financial side, profitability was stable in 2014, as operating profits ticked up from 35.2% to 36.2%. Return on equity dipped, return on assets was unchanged, and earnings before taxes increased, while low interest rates kept costs low. New business volume per sales full-time equivalent employee increased nearly 4% as competition drove companies to maximize productivity and efficiency, and pursue competitive advantages.
• The propensity to finance steadily increased in 2014. The trend in the Foundation-Keybridge Propensity to Finance Equipment Index suggests that companies’ tendency to finance has increased steadily since hitting a post-recession low in late 2010. A combination of low interest rates and rising corporate profits has enabled private companies to take on more debt, and leasing remains an attractive way for businesses to replace equipment and expand operations
• Uncertainties ahead provide threats and opportunities. The equipment finance industry faces several unknowns, both in the U.S. and abroad. Regulation is an ongoing concern, particularly for banks, and government dysfunction, including threatened government shutdowns and debt ceiling disputes, remain threats on the horizon. Turmoil in the global economy could hurt growth in the U.S. and dampen business investment, but a solid labor market and strengthening housing market provide reasons for optimism.