Equipment Finance Sector up 24% From Last Year

ELFA: January New Business Up 24 Percent Over Year

The Equipment Leasing and Finance Association’s Monthly Leasing and Finance Index (MLFI-25) showed overall new business volume for the equipment finance sector in January was $4.2 billion, up 24 percent compared to the same period in 2010.
“After a typical end-of-quarter, end-of-year spike in new business activity, the equipment finance sector seems to be resuming a steady pace of increasing volume,” said ELFA President and CEO William Sutton. “This trend, coupled with a strong outlook by leasing and finance executives about the future of the industry, bodes well for a continued recovery of the sector.”
Credit quality is mixed. Receivables over 30 days increased slightly to 2.8 percent in January from 2.7 percent in December, but declined by 35 percent compared to the same period in 2010. Charge-offs declined significantly, falling to 1 percent from 1.4 percent in December, and also showed improvement over the same period in 2010.
Compared to the year-earlier period, credit standards relaxed as approvals increased to 74 percent in January. And, 56 percent of participating organizations reported submitting more transactions for approval during the month, down from two-thirds of responding organizations in December.
Finally, total headcount for equipment finance companies remained flat for the past three months, and reflected a year-over-year decrease of four percent for January. Supplemental data shows that the construction and trucking sectors once again led the underperforming sectors in January.
Separately, the Equipment Leasing & Finance Foundation’s Monthly Confidence Index for February is 71.6, a new high since the MCI was launched in May 2009, and an increase from the previous high of 69.7 in January.
The MLFI-25 is the only index that reflects capex, or the volume of commercial equipment financed in the U.S. The MLFI-25 is a financial indicator that complements the durable goods report and other economic indexes, including the Institute for Supply Management Index, which reports economic activity in the manufacturing sector. Together with the MLFI-25 these reports provide a complete view of the status of productive assets in the U.S. economy: equipment produced, acquired and financed.
The latest Monthly Leasing and Finance Index, including methodology and participants is available below and also at http://www.elfaonline.org/ind/research/MLFI/.

 

   

What will 2011 hold for Equipment Finance?

Looking towards 2011 we are asking a lot of questions.  What will the equipment leasing industry do, how will it adapt? Will Money Come Back into Equipment Finance?

We are already seeing a large number of banks bid aggressively for middle-market and larger small-ticket transactions. Some of the national banks have been going up to $250,000 and $300,000 on an application-only basis for bank customers on equipment and industry sectors they like.

There are a few new entrants into the small-ticket application-only market, including the broker market (on a selective basis). This trend will probably continue in 2011 and pricing will be very aggressive on quality transactions.

This is a mixed bag for syndicators of transactions. On one hand, there will be more sources of capital available. On the other hand, there may be a large rate differential between walking down the street to Wells Fargo and getting financed at 4% and selling a broker transaction with points - so the syndicator world will continue to be predominantly "B" and "C" deals, not true "A" deals.

Lots of Smaller Banks will Continue to Fail and Shed Assets
The FDIC will begin to press weaker banks to shed assets and shut down now that there is ample liquidity in the overall system. As such, we see opportunities to purchase portfolios and leasing companies from banks next year. There will, however, be lots of bidders for those assets.  In general, we will see greater separation of the "haves" and the "have nots" in the funding world and the "haves" are going to be buying market share.

What will 2011 Hold?
We are coming out of a very deep recession, and tangible recovery is only just begging. For many leasing companies it is still going to be a difficult year. Overall equipment demand - especially for small businesses - is still weak (even though it is better). There are just not enough good deals to go around.  The next year is going to require huge amounts of hard work to be profitable.

More Competitive
Even small leasing companies are in a world market. Large companies like GE, Wells Fargo, Bank of America, Chase, etc. are constantly investing in new technology. These companies do collections from India at a much lower cost than small companies in the US. The large companies are run by smart people who are out to crush us all (Yikes!). In 2011 this trend will continue (as it will in 2012 and 2013 and forever). You had better be ready to compete.  You had better add some value or you are done.

Banks Will Still Be Banks
Having said that large institutions and especially banks are going to continue to be big competitors, there is an opposite side of the coin. The banks are struggling with increased regulation (unlikely all of it will be repealed even with a Republican House) and they are generally not interested in small, complex areas of the economy. Thus, we see that value will continue to be added by focusing on the complex and focusing on "niche" markets.

People Will Wake Up to Accounting Change
Radical accounting changes are coming. The smaller the borrower the less effect the changes will have. However, it will open up real opportunity for lessors willing to take big residual risk in the future as companies will be interested in shedding liabilities from the balance sheet. We will be back to having lessors who are actually in the equipment business. Change will not likely come until 2013, but next year is only two years away!

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ELFF: Equipment Finance Confidence Continues to Rise

Overall, confidence in the equipment finance market is 65.5, an improvement from the October 2010 index of 58.8, according to the Equipment Leasing & Finance Foundation’s release of the November 2010 Monthly Confidence Index for the Equipment Finance Industry (MCI-EFI).

“The optimism shared by the speakers and attendees at the ELFA Annual Convention may be one of the best leading indicators that the industry is on the rebound,” said survey respondent Adam Warner, president, Key Equipment Finance. “This annual gathering always provides a glimpse into the overall equipment finance industry, and this year both attendance and energy were high. Our experience at Key Equipment Finance is also in sync with the survey results that show increasing confidence in the market. We’ve seen a recent increase in new business activity, and I join the ranks of those who are cautiously optimistic about the state of the industry.”
When asked to assess if their current business conditions would remain the same in the next four months, 38% of executives responding said they believe business conditions will improve, an improvement from 26.8% in October. No respondents believe conditions will get worse (compared with 7.3% in October), and 61.9% believe business conditions will remain the same in the next four months, down from 65.9% in October.
43% of survey respondents, up from 34% in October, believe demand for leases and loans to fund capital expenditures (capex) will increase, while 55%, down from 61%, in October, believe demand will “remain the same” during the same four-month time period. 2.4% believe demand will decrease, a drop from 4.9% in October.
64.3% of survey respondents indicate they expect the “same” access to capital to fund business, a significant decrease from 78% in October. 35.7% of executives expect more access to capital to fund equipment acquisitions, up from 22% in October. No one expects “less” access to capital, an improvement from 4.7% last month.
When asked, 40.5% of the executives reported they expect to hire more employees, up from 22% in October, and 47.6% expect no change in headcount in the next four months, while 12% expect fewer employees, up from 7.3% in October.
100% of the leadership still evaluate the current U.S. economy as “poor” or “fair,” at 33.3% and 66.7%, respectively.
40.5% of survey respondents believe that U.S. economic conditions will get “better” in the next six months, an improvement from 17% in October. 59.5% said they believe the U.S. economy will “stay the same” in the next six months, down from 75.6% in October. No one responded they believe economic conditions in the U.S. will worsen over the next six months, down from 7% who believed so in October.
In November, 45.2% of respondents indicate they believe their company will increase spending on business development activities during the next six months, up from 36.6% in October. 54.8% believe there will be “no change” in business development spending, down from 63% last month.
Survey results are posted on the Foundation website, http://www.leasefoundation.org/IndRsrcs/MCI/. Survey respondent demographics and additional information about the MCI are also available at the link above.

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Equipment Finance Industry Confidence Shows Signs of Improvement

Washington, DC, October 22, 2010 –- The Equipment Leasing & Finance Foundation (the Foundation) releases the October 2010 Monthly Confidence Index for the Equipment Finance Industry (MCI-EFI) today.  Designed to collect leadership data, the index reports a qualitative assessment of both the prevailing business conditions and expectations for the future as reported by key executives from the $521 billion equipment finance sector.   Overall, confidence in the equipment finance market is 58.8, an improvement from the September 2010 index of 56.9.

When asked about the outlook for the future, survey respondent Russell Nelson of Farm Credit Leasing, said, “Continued uncertainty and volatility in domestic and foreign markets, mixed economic data and forecasts, political impact of November elections, ongoing regulatory issues, and pending lease accounting changes will change the operating landscape and the number of players during the next 12 to 24 months.  Institutions with strong capital, diversified customer/industry base, operational discipline, and creative/talented/energetic workforce will be rewarded with significant increase in demand for financing of necessary asset growth and replacement of aging equipment.”

October  2010 Survey Results:

The overall MCI-EFI is 58.8, an improvement from the September index of 56.9.

§         When asked to assess if their current business conditions would remain the same over the next four months, 26.8% of executives responding said they believe business conditions will improve over the next four months, a slight decrease from 27.9% in September. 7.3% believe conditions will get worse (compared with 4.7% in September), and 65.9% believe business conditions will remain the same over the next four months.

• 34% of survey respondents, up from 32.6% in September, believe demand for leases and loans to fund capital expenditures (capex) will increase over the next four months, while 61%, up from 55.8% in September, believe demand will “remain the same” during the same four-month time period, and 4.9%, a significant drop from 11.6% in September,  believe demand will decrease.

• 78% of survey respondents indicate they expect the “same” access to capital to fund business, a significant increase from 67.4% in September.  22% of executives expect more access to capital to fund equipment acquisitions over the next four months. 4.7% expect “less” access to capital.
• When asked, 22% of the executives reported they expect to hire more employees over the next four months, up from 20.9% in September, and 70.7% expect no change in headcount over the next four months, while 7.3% expect to lay off employees, up from  4.7% in September.

• 100% of the leadership still evaluate the current U.S. economy as “poor” or “fair.”  In September, 68% rated the economy as “fair” and 32% rated the economy as “poor”.

• 17% of survey respondents believe that U.S. economic conditions will get “better” over the next six months. 75.6% of survey respondents indicate they believe the U.S. economy will “stay the same” over the next six months, up from 69.8% response in September. 7% believe economic conditions in the U.S. will worsen over the next six months.

• In October, 36.6% of respondents indicate they believe their company will increase spending on business development activities during the next six months, up from 27.9% in September.  63% believe there will be “no change” in business development spending.

October  2010 MCI Survey Comments from Industry Executive Leadership:

Depending on the market segment they represent, executives have differing points of view on the current and future outlook for the industry.

Bank, Large Ticket

“The leasing industry will continue to be challenged in the near future due to upcoming lease accounting changes, modest client demand and excess liquidity.” CEO, Large-ticket, bank owned company

Captive, Small Ticket

“Depending on the accounting and tax situation, I think the future of the industry is uncertain.” CEO, Small-ticket Captive

Bank, Middle Market

“[The Industry] remains challenged as businesses are carefully regarding their commitment to capex spending.”  Elaine Temple, BancorpSouth Equipment Finance

 

Why an MCI-EFI?

Confidence in the U.S. economy and the capital markets is a critical driver to the equipment finance industry. Throughout history, when confidence increases, consumers and businesses are more apt to acquire more consumer goods, equipment and durables, and invest at prevailing prices. When confidence decreases, spending and risk-taking tend to fall. Investors are said to be confident when the news about the future is good and stock prices are rising.

Who participates in the MCI-EFI?

The respondents are comprised of a wide cross section of industry executives, including large-ticket, middle-market and small-ticket banks, independents and captive equipment finance companies.  The MCI-EFI uses the same pool of 50 organization leaders to respond monthly to ensure the survey’s integrity.  Since the same organizations provide the data from month to month, the results constitute a consistent barometer of the industry's confidence.

How is the MCI-EFI designed?

The survey consists of seven questions and an area for comments, asking the respondents’ opinions about the following:

1. Current business conditions
2. Expected product demand over the next four months
3. Access to capital over the next four months
4. Future employment conditions
5. Evaluation of the current U.S. economy
6. U.S. economic conditions over the next six months
7. Business development spending expectations
8. Open-ended question for comment

How may I access the MCI-EFI?

Survey results are posted on the Foundation website, http://www.leasefoundation.org/IndRsrcs/MCI/, included in the Foundation Forecast newsletter and included in press releases.   Survey respondent demographics and additional information about the MCI are also available at the link above.

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The Equipment Leasing & Finance Foundation is a 501c3 non-profit organization that provides vision for the equipment leasing and finance industry through future-focused information and research. Primarily funded through donations, the Foundation is the only organization dedicated to future-oriented, in-depth, independent research for the leasing industry. Visit the Foundation online at http://www.leasefoundation.org/.