Equipment finance new business volumes dip

Latest data from the Equipment Leasing and Finance Association (ELFA) suggests new business volume for a representative cross-section of companies in the sector fell by 12% in April compared to the same month last year, and also dipped 10% on the figure for March.

According to ELFA’s Monthly Leasing and Finance Index (MLFI-25), new business volume last month totalled $7.3 billion, below the $8.1 billion in recorded in March. Year to date, cumulative new business volume decreased 10% compared to 2015.

The data shows receivables over 30 days were 1.2%, unchanged from the previous month and up from 0.89% in the same period in 2015. Charge-offs were 0.30%, down from 0.5% the previous month.

Ralph Petta, ELFA president and CEO, said: “With April data showing declining originations, mixed portfolio quality, and a lower level of confidence by equipment finance executives, it appears that political uncertainty joins economic uncertainty as one of the reasons businesses are holding off investing in capital equipment at this time. “

“Sluggish activity to begin the second quarter seems to have continued the relatively soft Q1, both in terms of overall equipment finance industry performance and economic activity,” Petta added.

One of the survey respondents, Thomas Partridge, president, Fifth Third Equipment Finance, reported continuing good demand for capital equipment.

“The picture remains favorable for those looking to finance capital equipment, as interest rates remain low and credit markets remain very competitive. The recent weakening of the dollar should help those companies focused on exporting goods and services. Given the low price of oil, as well as some of the recent bankruptcy filings, those with ties to the oil industry have a significant opportunity to restructure existing facilities,” Partridge said.

Drop in confidence

Separately, the Equipment Leasing & Finance Foundation’s Monthly Confidence Index (MCI-EFI) for May is 55.1, a decrease from the April index of 59.1 after two consecutive months of increases. Concerns about the impact of the US political scene were top of mind among respondents.

When asked about the outlook for the future, Valerie Hayes Jester, president, Brandywine Capital Associates, said: “Application activity has been strong in the last 30 days, but I suspect that is pent-up demand from customers who delayed equipment purchases in the last quarter. Rates continue to be low and credit approvals are not a factor. It is more the reluctance of the small business owner to make expansion decisions given our current political environment that concerns me.”

When asked to assess their business conditions over the next four months, 16.1% of executives responding said they believe business conditions worsen, an increase from 12.1% the previous month.

Although 16.1% of survey respondents believe demand for leases and loans to fund capital expenditures will increase over the next four months, getting on for a quarter (22.6%) believe demand will decline, an increase from 18.2% who believed so in April.

None of the leadership evaluates the current US economy as “excellent,” a decrease from 3% last month. The majority (96.8%) of the leadership give the economy a “fair” rating, relatively unchanged from April, but 3.2% now rate it as “poor,” an increase from none the previous month.

There are also strong indications of storm clouds ahead, as 29% of the sample now believe economic conditions in the US will worsen over the next six months, an increase from 9.1% who believed so last month.

“Originations have been strong but we are concerned that there are signs of a slow-down economically. This, combined with the political scene, makes us less optimistic than we have been these past few quarters,” said David Schaefer, CEO, Mintaka Financial.