Equipment Leasing and Finance Industry Confidence Holds Steady in July

According to the July 2020 Monthly Confidence Index for the Equipment Finance Industry from the Equipment Leasing & Finance Foundation, confidence in the equipment finance market is 45.3, steady with the June index of 45.8.

“We continue to find solutions for our customers as they traverse through the COVID crisis,” Michael Romanowski, president of Farm Credit Leasing, said. “In some cases, we are providing leasing solutions to customers who have not considered leasing in the past. We expect these new relationships to continue to grow even after the pandemic has moved on.”

When asked to assess their business conditions over the next four months, 21.4% of executives said they believe business conditions will improve over the next four months, down from 37% in June. Meanwhile, 50% believe business conditions will remain the same over the next four months, an increase from 18.5% the previous month. In addition, 28.6% believe business conditions will worsen, a decrease from 44.4% in June.

“Business volume is strong and we are maintaining portfolio performance,” David Normandin, CLFP, president and CEO of Wintrust Specialty Finance, said. “Yields are better and COVID affected accounts continue to fall.”

The survey showed that 14.3% of the respondents believe demand for leases and loans to fund capital expenditures (capex) will increase over the next four months, down from 18.5% in June. A majority (64.3%) believe demand will “remain the same” during the same four-month time period, an increase from 44.4% the previous month, while 21.4% believe demand will decline, a decrease from 37% in June.

“We are starting to see some spending, possibly pent-up demand, with businesses that had put acquisitions on hold at the onset of COVID-19,” Bruce J. Winter, president of FSG Capital, said. “Stronger borrowers are looking to take advantage of the situation and tuck in, or otherwise acquire weaker competitors.”

According to the survey, 10.7% of respondents expect more access to capital to fund equipment acquisitions over the next four months, up from 7.4% in June. Meanwhile, 78.6% of executives expect the “same” access to capital to fund business, a decrease from 85.2% last month, and 10.7% expect “less” access to capital, an increase from 7.4% the previous month.

When asked, 7.1% of the executives reported they expect to hire more employees over the next four months, relatively unchanged from 7.4% in June. A majority (75%) expect no change in headcount over the next four months, a decrease from 85.2% last month, and 17.9% expect to hire fewer employees, up from 7.4% the previous month.

None of the leadership evaluated the current U.S. economy as “excellent,” unchanged from the previous month. In addition, 39.3% of the leadership evaluated the current U.S. economy as “fair,” up from 22.2% in June, while 60.7% evaluated it as “poor,” down from 77.8% last month.

The survey revealed that 25.9% of respondents believe that U.S. economic conditions will get “better” over the next six months, a decrease from 55.6% in June. More than half (55.6%) believe the U.S. economy will “stay the same” over the next six months, an increase from 25.9% last month, while 18.5% believe economic conditions in the U.S. will worsen over the next six months, unchanged from the previous month.

“There’s little cause for optimism. I’m very concerned that continued coronavirus infections will cause rolling closures across the country,” Quentin Cote, CLFP, president of Mintaka Financial, said.

In July, 21.4% of respondents indicated they believe their company will increase spending on business development activities during the next six months, an increase from 14.8% last month. More than half (57.1%) believe there will be “no change” in business development spending, down from 74.1% in June, and 21.4% believe there will be a decrease in spending, an increase from 11.1% last month.

The ELFF also released highlights of the 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. From 77 survey responses collected from July 1-11, results showed that 95% of equipment finance companies have offered payment deferrals and 77% of companies expect that the default rate will be greater in 2020 than in 2019. A majority (83%) of companies have not furloughed or laid off employees.

“The gamble of deferring payments will either pay off or not in the next three months as we see how many of the deferred customers survive,” Jim DeFrank, executive vice president and chief operating officer of Isuzu Finance of America, said. “We, a truck manufacturer captive, are more involved in ‘final mile’ delivery, and we see the next one to three years as being steady. Past that it is a guessing game. Everything depends on curbing the pandemic.”

“The short term will be challenging for many. By year end, I believe you will see a number of firms exit the business,” Nancy Pistorio, CLFP, president of Madison Capital, said. “However, adversity for some also provides opportunity for others. This is a resilient and innovative industry which will manage through these unprecedented times and endure over the long term.”

“Short term we are extremely focused on helping our clients navigate through the COVID-19 pandemic, and internally focused on leveraging technology to ensure we continue to deliver outstanding service to our clients,” Samuel Smith, president of Customers Commercial Finance, said. “Many of our competitors have either ceased originating or scaled back their originations, which has resulted in new opportunities for our firm. Medium- to long-term we are focused on recruiting new talent, along with ‘A Players’ to ensure we are well positioned to meet our aggressive growth objectives.”

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