The study, commissioned by the ELFF and prepared by Keybridge, reveals that the industry expanded from an estimated $903 billion (revised) in 2018 to $992 billion in 2019, representing approximately 53% of total equipment and software investment, up from just below 50% in 2018. The propensity to finance equipment acquisitions increased in 2019 and has continued to rise in 2020 as long-term interest rates decline.
The report is based on data provided by a range of equipment finance industry leaders and Keybridge, the ELFF’s economic researchers. It summarizes the state of the economy heading into the pandemic, discusses COVID-19 and the resulting recession with a focus on the equipment finance industry, and includes a sneak peek at the economic trends that will shape the industry in 2021.
“This Special COVID-19 Impact Issue provides a unique and timely comprehensive view of the economic impact of the pandemic with a special focus on the equipment finance industry,” Scott Thacker, chair of the ELFF and CEO of Ivory Consulting, said. “Looking toward 2021, there will be substantial headwinds and heightened uncertainty; however, I am optimistic that the equipment finance industry can and will adapt as these severe disruptions also bring great opportunities which will guide us all to brighter days in the year ahead.”
Highlights from the Equipment Finance in 2020: Special COVID-19 Impact Issue
New Business Volume Growth. Despite decelerating investment spending in 2019, new business volume growth in the equipment and finance industry accelerated to 4.7% This was at least in part due to rising propensity to finance equipment and software acquisitions, which in turn was supported by the Federal Reserve lowering interest rates in the second half of the year.
Industry Fallout. The equipment finance industry, like the rest of the economy, suffered at the onset of the coronavirus pandemic. The Federal Reserve slashed rates to zero and Congress enacted $3 trillion in stimulus measures for consumers, businesses, and state and local governments. Meanwhile, many lenders and most equipment finance firms offered temporary payment relief in an effort to “pause the payment clock” until the economy could restart.
Equipment Vertical Performance. The industrial core of the economy — and several key equipment verticals — have rebounded more quickly than initially anticipated. New business volume in the equipment finance industry staged a comeback, with some verticals (e.g., computers and software) benefitting from the pandemic as 30% to 40% of the U.S labor force transitioned to remote work. Other equipment verticals, such as aircraft, office equipment, and oil and mining equipment, continued to struggle due to the pandemic and resulting fallout.
Industry Outlook. After the economy suffered its steepest and deepest decline in GDP since 1946, the outlook for the U.S. economy in 2021 is among the most uncertain on record. However, the business environment for equipment finance firms is expected to be more favorable in 2021, although performance will be highly sector-dependent. Banks are widely expected to step back from smaller-ticket deals and focus on core markets, which may provide an opportunity for independents to increase market share. Some industry consolidation may occur, particularly among firms with outsized exposure to industries that are heavily impacted by COVID-19. While a near-term spike in inflation appears unlikely, it is a potential development worth monitoring given the impact it could have on the industry.
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