Outlook positive for equipment leasing

At the midpoint of the year, the prospects for the equipment leasing industry continue to look good according to the latest research from the Equipment Leasing and Finance Foundation (ELFF), which confirms that many lenders expect demand to hold up for the remainder of 2015.

ELFF’s Monthly Confidence Index for the Equipment Finance Industry (MCI-EFI) currently stands at 62.6, suggesting that confidence in the equipment finance market remains essentially the same as the June index of 63.

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 sector.

Economy in good shape

The July survey results suggest many in the industry believe broader economic conditions will remain unchanged, but the attitudes and requirements of businesses are likely to swing in favour of taking on more investment in equipment and therefore seeking more finance.

“Demand continues to remain consistent. We still experience a reluctance on the part of small business owners to consider acquiring equipment that will help grow their business as opposed to replacement equipment. Mid-size and larger companies continue to remain fairly bullish on investment opportunities. Abundant capital and low delinquency statistics continue to keep rates and margins under pressure,” says Valerie Hayes Jester, president of independent small ticket leasing specialist Brandywine Capital Associates.

When asked to assess their business conditions over the next four months, 17.2% of executives responding to ELFF’s survey said they believe business conditions will improve over the next four months, relatively unchanged from 17.9% in June. While 6.9% now think business conditions will worsen, three quarters (75.9%) of respondents are expecting them to remain the same over the next four months.

There has been a hike in the number of respondents who think the US economy is in good shape, with 13.8% evaluating the current situation as “excellent,” an increase from 3.6% last month. Overall, most (82.8%) of those polled evaluate the current US economy as “fair”, and 69% indicate they believe economic conditions will stay the same over the next six months. One in four (24.1%) think the US economy will get “better” over the same timeframe.

“I believe that there continues to be pent-up demand for capital equipment investment while there is also expectation of higher rates in the future. This can be a powerful combination for growth in our industry, says Paul Menzel, president & CEO, of bank lender Financial Pacific Leasing.

Demand for leases rising

When asked about the outlook for the future, MCI-EFI survey respondent David T. Schaefer, CEO, Mintaka Financial, said: “New applications for leases and loans increased significantly in the latter half of the second quarter. If this trend continues we would have a record third quarter post-recession. I’m moderately optimistic as we have experienced unsustained bursts in the recent past.”

One in five (20.7%) of survey respondents believe demand for leases and loans to fund capital expenditures will increase over the next four months, while 72.4% believe demand will “remain the same” during the same time period. A similar proportion (20.7%) expect more access to capital to fund equipment acquisitions over the next four months, with the remainder (79.3%) indicating they expect the “same” access to capital to fund business. None expect “less” access to capital, unchanged from the previous month.

“Capital expenditures for equipment continue to ramp upward in almost all sectors. Favorable market conditions, low interest rates and ample capital availability are the driving factors,” reports Harry Kaplun, president, Frost Equipment Leasing and Finance.

Small businesses gain confidence

There is further support for ELFF’s predictions from a separate mid-year survey conducted by small business loan provider and equipment financing company Balboa Capital. This reveals that business owners believe the US economy is on the right track and will perform well during the remaining months of 2015. The survey was sent to more than 35,000 small business owners nationwide in June 2015.

“65% of small business owners we surveyed are optimistic about the economy and think it will continue to improve during the second half of the year,” said Jake Dacillo, director of marketing at Balboa Capital. “This speaks to the improvements in revenue and cash flow that small businesses experienced throughout the first six months of 2015.”

Balboa’s research shows that half (48%) of small business owners think the economy will end the year with higher growth, and suggests that this confidence in improving conditions is starting to translate into more investment.

A third (33%) of small business owners say want to expand their operations, 20% want to purchase capital equipment and/or technology, 15% want to increase their inventory, and 9% want to increase their marketing efforts during the second half of 2015.

A quarter (26%) of the small business owners polled say they acquired capital from an alternative lender during the first six months of 2015. For those looking for funding during this period, the most popular options include credit lines (16%), equipment leasing (12%) and small business loans (8%).

“One out of three business owners who responded to our survey want to expand their operations in Q3 and Q4, and this is consistent with recently published economic and employment numbers as they relate to small businesses,” said Dacillo. “

Sales predicted to increase

According to the latest Business Conditions Survey from the National Association for Business Economics (NABE), based on the responses of 112 NABE members and selected other industry, the outlook is expected to remain positive

The results suggest sales growth was less widespread in the second quarter of 2015 than in the first quarter, following a similar slowdown three months ago. Only 46% of panelists in the July survey reported rising sales at their firms last quarter, compared to 49% in the April survey, and 54% in the January survey, which covered the fourth quarter of 2014.

However, a majority of survey panelists (59%) expects sales to rise during the third quarter of 2015. In addition, profit margins increased at more firms in the second quarter than in the first. Nearly one-third (32%) of respondents reported wider profit margins compared to the 26% reporting wider margins in the first quarter.

“The July 2015 Business Conditions Survey results show a majority of panelists expect solid growth for the remainder of 2015,” said NABE President John Silvia, chief economist at Wells Fargo.