Equipment finance sector hit by economic headwinds

Prospects for the equipment finance sector in the near future look uncertain, according to the latest research from the Equipment Leasing and Finance Association (ELFA), which shows that new business volumes in early 2016 are falling below the previous year’s figures.

ELFA’s Monthly Leasing and Finance Index (MLFI-25), which reports on economic activity from 25 companies representing a cross section of the industry, showed their overall new business volume for March was $8.1 billion, up 33% from new business volume in February.

However, volume was down 11% from $9.1 billion in March 2015. Year to date, cumulative new business volume decreased 9% compared to 2015.

Receivables over 30 days were 1.2%, down from 1.4% the previous month and up slightly from 1.18% in the same period in 2015. Charge-offs were 0.50%, up from 0.37% the previous month. Credit approvals totaled 77.7% in March, down from 79.2% in February.

ELFA president and CEO Ralph Petta said: “Despite showing a relatively healthy increase over February originations, March new business volume continued its decelerating trajectory when compared to the same period in the prior year.”

Uncertainty

According to Petta: “Headwinds continue to tamp down a pattern of consistent growth within the equipment finance sector, as US businesses are uncertain about the outlook for strong and consistent growth in the US economy. Credit quality appears mixed. While the monthly delinquency data is promising, the sharp increase in losses bears careful monitoring in the months ahead.”

Petta’s analysis chimed with the experiences of one of the survey respondents, Tony Golobic, chairman and CEO, GreatAmerica Financial Services, who said his company had experienced a moderate increase in overall commercial equipment finance volume for much of the previous 12 months, up by 13.5% over the same period of last year.

“However, our March growth slowed to 5.6% over March of 2015. Our new business backlog is pointing to continued growth for the foreseeable future. Uncertainty about the Fed’s thinking about interest rates, the election, and the Great Recession resonates with many,” he said.

“These factors are resulting in some reluctance to invest in new equipment. There is ample supply of capital and we’re seeing increased credit appetites by some in our industry. While we have seen a modest uptick in our own delinquency and charge-offs, our portfolio credit quality continues to be strong,” Golobic added.