Equipment Finance Industry Confidence Improves Again in August

According to the Equipment Leasing & Finance Foundation’s August Monthly Confidence Index for the Equipment Finance Industry (MCI-EFI), overall, confidence in the equipment finance market is 50.4, an increase from the July index of 46.4.

“In spite of significant turmoil in the U.S. banking sector, including multiple downgrades and warnings from the rating agencies, as well as unprecedented interest rate increases over the past year, the equipment leasing and finance industry continues to persevere,” Dave Fate, CEO of Stonebriar Commercial Finance, said. “Secured equipment loans and leases continue to outperform every other asset class. I would expect our industry to continue to deploy much-needed capital — which serves as a catalyst for the U.S. economy — across a diverse set of industries across the credit spectrum. Stonebriar continues to thrive in this environment with year-to-date originations through July 31 of $1.26 billion, up 28% year over year.”

When asked to assess their business conditions over the next four months, 3.6% of respondents said they believe business conditions will improve over the next four months, a decrease from 7.7% in July. Meanwhile, 89.3% believe business conditions will remain the same over the next four months, up from 65.4% last month, and 7.1% believe business conditions will worsen, a decrease from 26.9% in July.

According to the August survey, 10.7% of respondents believe demand for leases and loans to fund capital expenditures (capex) will increase over the next four months, an increase from 7.7% in July, while 78.6% believe demand will “remain the same” during the same four-month time period, an increase from 69.2% last month. Additionally, 10.7% believe demand will decline, down from 26.7% in July.

This month, 7.1% of respondents expect more access to capital to fund equipment acquisitions over the next four months, down from 7.7% in July, while 78.6% of executives indicated they expect the “same” access to capital to fund business, up from 76.9% last month. In addition, 14.3% expect “less” access to capital, down from 15.4% last month.

When asked, 22.2% of executives reported they expect to hire more employees over the next four months, an increase from 15.4% in July, while 70.4% expect no change in headcount over the next four months, down from 76.9% last month. Only 7.4% expect to hire fewer employees, down slightly from 7.7% in July.

According to the August survey, 3.6% of the leadership evaluated the current U.S. economy as “excellent,” which was relatively unchanged from 3.9% last month. The majority of respondents (85.7%) evaluated the current U.S. economy as “fair,” up from 80.8% in July, while 10.7% evaluated it as “poor,” a decrease from 15.4% last month.

“In the past three years, our industry was directly affected by three major issues: COVID, the unprecedented speed and size of Fed rate hikes, and the unexpected fallout from deposit stickiness in the banking industry. After each occurrence, the confidence index for our industry dropped and then after a few months started to recover,” Mike Rooney, CEO of Verdant Commercial Capital, said. “What this tells us is that we aren’t immune to these strong forces, but after they happen, our industry reacts and finds a way to deal with them. This past resilience and agility are what give me confidence in the near-term future of our industry. There remain macro forces out there that we cannot control which could potentially impact every industry. These include an escalation of the war in Ukraine, further aggressive rate moves by the Fed and the potential crisis involving loan refinancing for commercial office buildings. All of these are big unknowns, but if the past is a guidepost for the future, our industry will find a way to succeed.”

This month, 10.7% of the respondents believe that U.S. economic conditions will get “better” over the next six months, a decrease from 11.5% in July, while 60.7% believe the U.S. economy will “stay the same” over the next six months, an increase from 53.9% last month, and 28.6% believe economic conditions in the U.S. will worsen over the next six months, a decrease from 34.6% last month.

In August, 25% of respondents believe their company will increase spending on business development activities during the next six months, down from 26.9% last month. Most respondents (67.9%) believe there will be “no change” in business development spending, up from 61.5% in July, while 7.1% believe there will be a decrease in spending, down from 11.5% last month.

“Hanmi’s leasing department continues to see steady demand for its funding services and as rates have started to stabilize, pricing has become less of an issue,” Mike Coon, CLFP, first vice president and portfolio manager at Hanmi Bank, said. “We are fortunate to have longstanding partners that are loyal and experienced originators. Increased delinquency and default rates from recent historic lows have our attention as potential concerns and we continue to monitor our portfolio closely.”

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