ELFA Releases Takeaways from Monthly Leasing and Finance Index Results From 2021

The Equipment Leasing and Finance Association released six key takeaways from its recent webinar covering a summary of the findings of its Monthly Leasing and Finance Index (MLFI-25) reports from 2021. The webinar covered historical trends of the index as well as ways organizations can use the data. The panelists for the webinar were Ralph Petta, president and CEO of the ELFA; Richard Barry, president of Merchants Bank Equipment Finance; and Bill Choi, vice president of research and industry services at the ELFA.

“The MLFI-25 is a great example of the association’s survey-based research, which relies on the input of ELFA members,” Petta said. “Member feedback enables benchmarking and predictive, actionable decision-making for businesses in a variety of areas.”

Webinar Takeaways

  1. The MLFI-25 enables performance benchmarking. The same 25 ELFA member companies representing a cross-section of the equipment finance industry are surveyed each month to provide a snapshot of the general direction of five key metrics: new business volume, accounts receivable, average losses (charge-offs), credit approvals and change in headcount. Through this collection of metrics, organizations can benchmark their operations and gauge their performance against industry peers. The MLFI-25 is also used in capital markets and funding source presentations and reported in business media as an indicator of capital expenditures (capex) in the United States. It’s a barometer of the health of the equipment finance sector and the extent of equipment demand in a given month.
  2. The MLFI-25 mimics the economy’s performance. If the economy is doing well, so are equipment finance companies. During the early days of the COVID-19 pandemic in 2020, new business volume was down about 6%. In 2021, new business volume was up almost 9% compared with 2020. Historically, the index has had some minor declines, but was hit the hardest during the Great Recession, when new business volume declined by more than 30%. Further emphasizing the economic significance of the MLFI, Choi said, “The MLFI is released the day before the durable goods report each month. Our analysis has shown a strong correlation between the two.”
  3. 2021 MLFI-25 metrics were positive overall. Captives and independents performed well in 2021, with positive growth in new business volume in all four quarters. Banks comprise the biggest segment of the MLFI-25 and in Q1/21, they showed negative year-over-year quarterly growth but remained in positive territory for the rest of the year. Receivables declined in December due mostly to the bank sector, while independents performed as well or better than banks and other financial institutions. Charge-offs were at their lowest levels in decades and down 40% from two years earlier before the pandemic. Credit approvals remained steady and reached their highest level in three years. Year-over-year change in total number of employees was significantly impacted by a reduction in one MLFI-25 reporting company’s workforce. However, examining the data with that company’s headcount removed shows the employment situation returned to positive growth territory in October 2021.
  4. Equipment finance companies have navigated well through the pandemic. The MLFI-25 has been compiled since 2005, and historical MLFI data show the industry impact of recessions and economic cycles. Comparing the effects of the Great Recession with the COVID-19 pandemic, MLFI-25 data show that equipment finance companies have been better able to cope with the crisis of the pandemic. Today, receivables are at normal levels and charge-offs are at record lows. “Our experience at Merchants and among my industry colleagues mirrored that of the MLFI,” Barry said. “Things became acute in early 2020, and the vast majority of the industry worked very closely with our customers in going to deferrals, interest-only or principle-only payments, or whatever we could do to support them through the rough times. As we’ve worked through that, we’ve seen some real stabilization, which reflects what the MLFI data show.”
  5. December is traditionally the highest new business volume month. While December consistently has the highest level of new business volume each year due to the big end-of-year push of financial institutions, end-of-quarter new business volume is also usually higher than other months. Those with vendor partnerships serving as de facto finance arms and vendors trying to meet quarterly and annual goals will put promotions in place using equipment finance companies to drive increased volume and activity. Many customers delve into tax planning more at the end of the summer/early fall and may determine tax and accounting benefits of securing additional equipment and taking the depreciation prior to year-end.
  6. MLFI data is segmented for small-ticket and financial institutions. The small-ticket MLFI is a subset of the MLFI-25 companies whose total volume is comprised of 80% or more of small-ticket transactions. The financial institutions MLFI collects data from additional smaller banks not reporting in the MLFI-25, which is why the number of participating companies listed each month often exceeds 25.

“Membership in ELFA bestows on each individual and member company access to a variety of resources and business intelligence,” Petta said. “I encourage members to become aware of the information available like the MLFI-25 that is designed to help you perform better and operate your business more successfully.”

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