Equipment Leasing Industry Confidence Rises in November

According to the Equipment Leasing & Finance Foundation’s November 2020 Monthly Confidence Index for the Equipment Finance Industry (MCI-EFI), overall confidence in the equipment finance market is 56.1, an increase from the October index of 55.0.

“All eyes are on the election. Depending on what shakes out with the political environment will impact businesses’ longer-term plans for investment,” Michael Romanowski, president of Farm Credit Leasing, said. “The present environment is on shaky ground and fiscal stimulus is needed to stop the tremors.”

When asked to assess their business conditions over the next four months, 26.9% of responding executives said they believe business conditions will improve over the next four months, down from 29.6% in October. Most (53.9%) believe business conditions will remain the same over the next four months, an increase from 51.9% the previous month. Meanwhile, 19.2% believe business conditions will worsen, an increase from 18.5% in October.

Only 19.2% of the survey respondents believe demand for leases and loans to fund capital expenditures (capex) will increase over the next four months, down from 22.2% in October. At the same time, 69.2% believe demand will “remain the same” during the same four-month time period, an increase from 66.7% the previous month, while 11.5% believe demand will decline, relatively unchanged from 11.1% in October.

“Following the distraction of the election, business will get re-focused on winning with whatever the new rules of engagement are and will continue to find ways to win,” David Normandin, CLFP, president and CEO of Wintrust Specialty Finance, said.

Just under a quarter (23.1%) of the respondents expect more access to capital to fund equipment acquisitions over the next four months, down from 33.3% in October. A majority (76.9%) of executives indicated they expect the “same” access to capital to fund business, an increase from 66.7% last month. None expect “less” access to capital, unchanged from the previous month.

When asked, 30.8% of the executives reported they expect to hire more employees over the next four months, up from 25.9% in October. Meanwhile, 57.7% expect no change in headcount over the next four months, a decrease from 63% last month, and 11.5% expect to hire fewer employees, relatively unchanged from 11.1% in October.

None of the leadership evaluated the current U.S. economy as “excellent,” unchanged from the previous month. The majority (76.9%) of the leadership evaluated the current U.S. economy as “fair,” up from 55.6% in October, while 23.1% evaluated it as “poor,” down from 44.4% last month.

A little more than a third (34.6%) of the survey respondents believe that U.S. economic conditions will get “better” over the next six months, an increase from 25.9% in October. Half (50%) indicated they believe the U.S. economy will “stay the same” over the next six months, a decrease from 59.3% last month, and 15.4% believe economic conditions in the U.S. will worsen over the next six months, up from 14.8% the previous month.

In November, 26.9 % of respondents indicated they believe their company will increase spending on business development activities during the next six months, an increase from 22.2% last month. Meanwhile, 69.2% believe there will be “no change” in business development spending, a decrease from 70.4% in October, and 3.9% believe there will be a decrease in spending, down from 7.4% last month.

“We believe better health outcomes related to the pandemic (therapeutics, forthcoming vaccine) coupled with more government stimulus will allow business formation and capital expenditures to return to a more normal pace,” Bruce J. Winter, president of FSG Capital, said.

The ELFF also released highlights from the most recent 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. The ELFF collected 55 survey responses from Nov. 2 to Nov. 13 on a range of topics, including payments deferrals, defaults and staff analysis.

According to the survey, 54% of companies expect that the default rate will be greater in 2020 than in 2019, down from 56% in October, while 35% expect it to be the same (unchanged from last month) and 11% expect it to be lower compared with 9% last month. Only 4% of lenders reported having more than 10% of their portfolio now under deferral, down from 7% of lenders last month. The largest percentage of respondents (69%) have 0.01% to 4.99% of dollars outstanding currently under payment deferral in their owned portfolio.

“Over the near term we expect continued volatility due to the election and impact of the continued COVID pandemic until such time as a vaccine is developed and accepted. Mid- and long-term we expect continued growth due to the resilient nature of the U.S. economy and our industry,” Kirk Phillips, president and CEO of Wintrust Commercial Finance, said.

“Our portfolio is comprised of all investment-grade credits so we have not seen any defaults due to COVID-19 impact. We have not received any requests by our customers for deferral of rents,” Aylin Cankardes, president of Rockwell Financial Group, said.

“The short-term effect will depend on the outcome of the election for my company, as we are 100% oil and gas,” Tracy Trimble, president of US Global Asset Investments, said.

According to NPR, the Associated Press, and multiple other sources, Joe Biden won the presidential election with 306 electoral votes. Most recently, the New York Times reported that Biden’s victory was further cemented after results in Georgia held up following a recount. Meanwhile, the makeup of the U.S. Senate remains undecided due to the race for Senate in Georgia. There will be a runoff election in Georgia on Jan. 5 to decide the outcome.

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