ELFF: Equipment Finance Industry Confidence Reaches Pre-Pandemic Levels

According to the Equipment Leasing & Finance Foundation’s December 2020 Monthly Confidence Index for the Equipment Finance Industry (MCI-EFI), overall confidence in the equipment finance market is 59.7, an increase from the November index of 56.1. The index reports a qualitative assessment of both the prevailing business conditions and expectations for the future as reported by key executives from the $900 billion equipment finance sector.

“While the COVID crisis continues to have significant impacts on businesses as we close out the year, there’s reason for cautious optimism now that the distribution of a highly effective vaccine is underway,” Paul Tyczkowski, senior vice president finance of LEAF Commercial Capital, said. “Assuming distribution occurs as planned, I’m hopeful for a steady return to at least some level of normalcy in our lives and the economy during 2021.”

When asked to assess their business conditions over the next four months, 27.6% of executives said they believe business conditions will improve over the next four months, up from 26.9% in November. In addition, 62.1% believe business conditions will remain the same over the next four months, an increase from 53.9% the previous month, while 10.3% believe business conditions will worsen, a decrease from 19.2% in November.

“The end to the pandemic is in sight, so while we need to navigate the next few months carefully, FY 2021 will undoubtedly improve as the year progresses.” Bruce J. Winter, president of FSG Capital, said.

According to the survey, 27.6% of the respondents believe demand for leases and loans to fund capital expenditures (capex) will increase over the next four months, up from 19.2% in November. More than half of respondents (55.2%) believe demand will “remain the same” during the same four-month time period, a decrease from 69.2% the previous month, while 17.2% believe demand will decline, up from 11.5% in November.

Additionally, 24.1% of the respondents expect more access to capital to fund equipment acquisitions over the next four months, up from 23.1% in November. Roughly three-quarters of executives (75.9%) indicated that they expect the “same” access to capital to fund business, a decrease from 76.9% last month. None of the respondents expect “less” access to capital, unchanged from the previous month.

When asked, 31% of the executives reported that they expect to hire more employees over the next four months, up from 30.8% in November. In addition, 69% expect no change in headcount over the next four months, an increase from 57.7% last month. None of the respondents expect to hire fewer employees, down from 11.5% in November.

None of the leadership evaluated the current U.S. economy as “excellent,” unchanged from the previous month. Meanwhile, 72.4 of the leadership evaluated the current U.S. economy as “fair,” down from 76.9% in November, and 27.6% evaluated it as “poor,” up from 23.1% last month.

According to the survey, 55.2% of respondents believe that U.S. economic conditions will get “better” over the next six months, an increase from 34.6% in November, while 34.5% believe the U.S. economy will “stay the same” over the next six months, a decrease from 50% last month, and 10.3% believe economic conditions in the U.S. will worsen over the next six months, down from 15.4% the previous month.

“Post-election, it’s still uncertain how the political environment will impact longer-term plans for business investment. Hopefully the fiscal stimulus required to steady the current instability will be passed without much further delay,” Michael Romanowski, president of Farm Credit Leasing, said.

In December, 34.5 % of respondents indicated that they believe their company will increase spending on business development activities during the next six months, an increase from 26.9% last month. The majority of respondents (62.1%) believe there will be “no change” in business development spending, a decrease from 69.2% in October, while 3.5% believe there will be a decrease in spending, relatively unchanged from 3.9% last month.

The ELFF also released highlights of its COVID-19 Impact Survey of the Equipment Finance Industry, a monthly survey of industry leaders designed to track the impact of the coronavirus pandemic on the equipment finance industry. Forty seven survey responses were collected from Dec. 1 through Dec. 14 on a range of topics, including payments deferrals, defaults and staff analysis.

Half of companies (50% ) expect that the default rate will be greater in 2020 than in 2019, down from 54% in November, while 33% expect it to be the same, down from 35% last month, and 17% expect it to be lower compared with 11% last month. Only 2% of lenders reported having more than 10% of their portfolio now under deferral, down from 4% of lenders last month. The largest percentage of respondents (64%) have 0.01% to 4.99% of dollars outstanding currently under payment deferral in their owned portfolio.

“Through 2021, the economic climate will be tepid in many sectors and robust in a few. The medium term will show a significant uptick in volume, particularly in the construction and ancillary industries. With the political strife, social justice issues, U.S. debt load and global competition, the long-term is uncertain at best,” Jonathan Ruga, CEO of Sentry Financial, said.

“There’s quite a bit of pent-up demand due to COVID. Mid-2021, we should see a large increase in equipment purchases in all verticals. As long as there is equipment to purchase, there will always be equipment finance needs,” Donna Yanuzzi, managing director of sales and marketing at F.N.B. Equipment Finance, said.

“Given the rising COVID rates, I would expect a temporary slowdown in activity in the short-term. Medium-term, and depending on monetary and tax policy with the new Biden administration, could exhibit a downturn and short recession. I believe in the long-term our industry will be strong, with new technological and alternative asset types driving demand,” Vincent Belcastro, group head syndications at Element Fleet Management, said.

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