Equipment Leasing and Finance Industry Confidence Surges in June

Confidence in the equipment finance market increased to 45.8, up from the May index of 25.8, according to the June 2020 Monthly Confidence Index for the Equipment Finance Industry from the Equipment Leasing & Finance Foundation.

“Despite the reduction in overall demand, the market size still remains extensive,” Daniel Krajewski, president and CEO of Sertant Capital, said. “We continue to find opportunity and have seen an uptick in application activity. We do have continued concern over the political environment and the divide that continues to exist in Washington.”

June 2020 Monthly Confidence Index for the Equipment Finance Industry Results

When asked to assess their business conditions over the next four months, 37% of executives believe business conditions will improve over the next four months, up from 3.3% in May. In addition, 18.5% believe business conditions will remain the same over the next four months, an increase from 10% the previous month, while 44.4% believe business conditions will worsen, a decrease from 86.7% in May.

“I am encouraged that businesses are reopening and getting back to work,” David Normandin, CLFP, president and CEO of Wintrust Specialty Finance, said. “Over the next three to six months, many businesses will recover and others will forever be changed in detrimental ways. I believe in the adaptive spirit of business leaders and their ability to change business models and find ways to build and grow in new directions to find success.”

Overall, 18.5% of the survey respondents believe demand for leases and loans to fund capital expenditures (capex) will increase over the next four months, up from 6.7% in May. Meanwhile, 44.4% believe demand will “remain the same” during the same four-month time period, an increase from 6.7% the previous month, and 37% believe demand will decline, a decrease from 86.7% in May.

Overall, 7.4% of the respondents expect more access to capital to fund equipment acquisitions over the next four months, up from none in May. The majority of executives (85.2%) expect the “same” access to capital to fund business, an increase from 73.3% last month, while 7.4% expect “less” access to capital, a decrease from 26.7% the previous month.

When asked, 7.4% of the executives said they expect to hire more employees over the next four months, a decrease from 16.7% in May. Most respondents (85.2%) expect no change in headcount over the next four months, an increase from 60% last month, while 7.4% expect to hire fewer employees, down from 23.3% the previous month.

None of the leadership evaluated the current U.S. economy as “excellent,” unchanged from the previous month. However, 22.2% of the leadership evaluated the current U.S. economy as “fair,” up from 10% in May, while 77.8% evaluated it as “poor,” down from 90% last month.

“As most jurisdictions across the U.S. begin to reopen, many of America’s businesses will find a way to restart and prosper again. Never underestimate the tenacity of American entrepreneurs.” Bruce J. Winter, president of FSG Capital, said.

More than half of the survey respondents (55.6%) believe U.S. economic conditions will get “better” over the next six months, an increase from 20% in May. Meanwhile, 25.9% believe the U.S. economy will “stay the same” over the next six months, a decrease from 30% last month, and 18.5% believe economic conditions in the U.S. will worsen over the next six months, down from 50% the previous month.

“I’m hopeful that the PPP loan relief programs have had a positive impact on keeping small businesses afloat,” Quentin Cote, CLFP, president of Mintaka Financial, said. “I think we will see in the next two months whether it helped limit failures or just postponed them.”

In June, 14.8% of respondents said they believe their company will increase spending on business development activities during the next six months, a decrease from 23.3% last month. A majority of respondents (74.1%) believe there will be “no change” in business development spending, up from 33.3% in May, while 11.1% believe there will be a decrease in spending, a decrease from 43.3% last month.

“The team is adjusting to the new normal,” Michael Romanowski, president of Farm Credit Leasing, said. “We are conducting a small number of customer visits based on customer requests and where physical distancing is practiced. All visits are day trips and we have not presently activated overnight travel. We are adapting sales strategies to ensure we are meeting customers’ expectations and to grow market share.”

In addition to the Monthly Confidence Index, according to the ELFF’s COVID-19 Impact Survey of the Equipment Finance Industry, 92% of equipment finance companies have offered payment deferrals, 82% of companies expect that the default rate will be greater in 2020 than in 2019, and a majority (81%) of companies have not furloughed or laid off employees. The survey was conducted between June 1 to June 11.

“We are projecting to see minimal performance issues through Q3 2020, due primarily to contract modifications,” Laurie Bakke, president of Western Equipment Finance, said. “As modification terms mature in Q4, we are projecting delinquency and defaults will begin to surface, resulting in a modest increase in defaults for 2020. Mid-term in the one- to two-year time frame, we will see stress with business closures and weaker secondary market valuations. We are projecting stabilized performance in 2022 with portfolio performance continuing to exhibit stress, albeit notably less than 2021. Overall, we see essential business segments producing consistent new business volume throughout all time periods.”

“I believe the equipment finance industry will experience steady demand in the near term as a result of some pent-up buying slowed or delayed by COVID-19,” Daryn Lecy, CLFP, vice president of operations at Oakmont Capital Services, said. “There will likely be many different players in our industry as a result of the recent slowdown, with some exiting, others merging, and new entrants. With much infrastructure work to be done, along with likely new industries and products coming to market as a result of quarantine, I am hopeful the next one to three years will result in steady growth in our industry. While I believe we will see some short-term accelerated use of electronic transactions and processes, and those that adopt sooner will benefit, some will not adopt. It will be a must to harness the technology efficiencies available to remain relevant in our industry beyond the next few years, which is both exciting and scary for some.”

“New originations have been strong over the past 60 days with several credits falling from A to B and C, which is our market,” Paul Fogle, CLFP, managing director of Quality Leasing, said. “As A lenders tighten, we benefit. I think we will see more defaults this year but if effective treatments and eventually vaccines are developed, I think long term the equipment finance industry should rebound and thrive.”

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