Equipment Leasing Confidence Rises in September, Default Expectations Remain Steady

The Equipment Leasing & Finance Foundation released the September 2020 Monthly Confidence Index for the Equipment Finance Industry (MCI-EFI), which reports a qualitative assessment of both the prevailing business conditions and expectations for the future as reported by executives from the $900 billion equipment finance sector. Overall, confidence in the equipment finance market is 56.5, an increase from the August index of 48.4.

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 75 survey responses collected from September 1-13, results showed that 91% of equipment finance companies have offered payment deferrals, including extensions, modifications or restructuring. In addition, 73% of companies expect that the default rate will be greater in 2020 than in 2019, down from 76% last month, while 20% expect it to be the same compared with 19% in August. In addition, 7% expect it to be lower compared with 5% last month. A majority (78%) of companies have not furloughed or laid off employees since the start of the pandemic.

“The equipment finance industry has always been resilient,” Dave Fate, president and CEO of Stonebriar Commercial Finance, said. “The debt and equity markets are strong with lots of liquidity, and election noise will be over soon.”

When asked to assess their business conditions over the next four months, 35.7% of executives said they believe business conditions will improve over the next four months, up from 24.1% in August. Meanwhile, 46.4% believe business conditions will remain the same over the next four months, a decrease from 51.7% the previous month, and 17.9% believe business conditions will worsen, a decrease from 24.1% in August.

“Steady application counts and approval ratios continue to tell the story of opportunity in our space. I expect the election cycle will be turbulent and affect business,” David Normandin, CLFP, president and CEO of Wintrust Specialty Finance, said.

In September, 28.6% of survey respondents said they believe demand for leases and loans to fund capital expenditures will increase over the next four months, up from 13.8% in August. Meanwhile, 64.3% believe demand will “remain the same” during the same four-month time period, a decrease from 65.5% the previous month, and 7.1% believe demand will decline, a decrease from 20.7% in August.

“We are seeing pipeline opportunity remaining steady across a broad spectrum of industries,” Daniel Krajewski, president and CEO of Sertant Capital, said.

The survey found that 17.9% of the respondents expect more access to capital to fund equipment acquisitions over the next four months, up slightly from 17.2% in August. Meanwhile, 78.6% of executives indicated they expect the “same” access to capital to fund business, an increase from 75.9% last month, and 3.6% expect “less” access to capital, a decrease from 6.9% the previous month.

When asked, 17.9% of the executives said they expect to hire more employees over the next four months, up from 13.8% in August, while 71.4% expect no change in headcount over the next four months, an increase from 69% last month. In addition, 10.7% expect to hire fewer employees, down from 17.2% the previous month.

None of the leadership evaluated the current U.S. economy as “excellent,” which was unchanged from the previous month. Nearly half (46.4%) of the leadership evaluated the current U.S. economy as “fair,” which was down from 48.3% in August. More than half of executives (53.6%) evaluated the U.S. economy as “poor,” up from 51.7% last month.

Half (50%) of the survey respondents believe that U.S. economic conditions will get “better” over the next six months, an increase from 31% in August. Meanwhile, 39.3% indicated that they believe the U.S. economy will “stay the same” over the next six months, a decrease from 44.8% last month, while 10.7% believe economic conditions in the U.S. will worsen over the next six months, down from 24.1% the previous month.

In September, 28.6% of respondents indicated they believe their company will increase spending on business development activities during the next six months, a decrease from 31% last month. In addition, 71.4% believe there will be “no change” in business development spending, an increase from 48.3% in August, while no respondents believe there will be a decrease in spending, down from 20.7% last month.

Executive Comments from the COVID-19 Impact Survey of the Equipment Finance Industry

“I am more positive than I was three months ago regarding the duration of the recession and the future in general,” Christopher Enbom, CLFP, CEO and chairman of AP Equipment Financing, said. “The economic stimulus was very well timed and now people are quickly adjusting to living with COVID. In certain industries spending has increased dramatically.”

“I have confidence that the equipment finance industry will always be a key element in providing capital to continue to support the supply chain,” Valerie Hayes Jester, president of Brandywine Capital Associates, said. “In an election year, with a pandemic and extensive social unrest, the immediate and medium-term future is not clear. The industry is durable and creative and will always be on the front lines of equipment acquisition and asset management.”

“While a few industries (e.g., restaurant, airlines, hospitality, elective health care, etc.) will be adversely impacted until COVID restrictions are lifted, most other industries are experiencing revenue improvement,” J.D. Jenks, CEO of Global Financial & Leasing Services, said. “Thus, short term will experience limited recovery, and medium and long term should be returning stronger than before the COVID shutdown of the economy.”

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