According to the results of a new survey titled “Impact of Bank Liquidity on the Equipment Finance Industry,” released by the Equipment Leasing & Finance Foundation, the equipment finance industry is experiencing a negative impact on business conditions due to recent bank failures and their attendant liquidity issues.

The survey, which was developed to track the immediate and long-term impact of the recent bank liquidity crises on equipment finance companies on a variety of factors, revealed that despite 56% of lenders expecting originations to increase in 2023, substantially more banks and captives feel that the impact of recent bank failure events was negative rather than positive for them. Independents, however, believe they will have more opportunities if banks tighten or restrict their small business lending activities.

Key Findings

• Overall impact: As a result of the recent liquidity crisis, 44% of banks expect a negative impact, 38% expect no impact and 19% expect a positive impact. While 37% of captives expect a negative impact and 63% expect no impact, independents are equally split between positive, negative and no impact from liquidity issues.
• Deposits: A majority of bank respondents believe negative changes in deposit levels would reduce new transaction and funding activity. An equal number of respondents expect deposits at their banks to increase (36%) or remain the same (36%).
• Originations: A little more than half of banks, 70% of independents and 33% of captives expect originations volume to increase this year.
• Cost of capital: All types of lenders expect their cost of capital to increase: 94% of banks, 79% of independents and 67% of captives.
• Spreads: According to the survey, 63% of banks and 39% of independents believe their margin requirement or credit spread will increase, while only 25% of captives believe so.
• Duration of liquidity stress: Thirty-three percent of all respondents said that liquidity stress is not currently an issue, 29% said it will be an issue for less than one year, 19% said it will be an issue for more than a year, 14% said it will be an issue for less than six months and 4% said it will be an issue for less than three months.
• Syndication markets: More than half of banks said they would reduce their purchasing, but only 15% said they would reduce their selling, likely foretelling a market imbalance with more sellers than buyers, though the difference was less extreme when all lender types were counted.

“This survey makes clear that almost all independents expect to benefit by recent events, while most banks, particularly smaller banks and captives, expect a negative impact, at least for the short-to-medium term,” Tom Ware, committee chair of research of the ELFF, said. “It also demonstrates the foundation’s continued dedication to its mission to provide relevant, future-focused research data for the betterment of the equipment finance industry.”

Survey responses were collected from 78 equipment finance company executives during April. Of the responses, 33 were from banks, 33 were from independents and 12 were from captives.