Leasing and finance new business volumes up 3%

The Equipment Leasing and Finance Association (ELFA) remains upbeat about prospects for 2017 after its data showed a 3% rise in new business volume at the start of the year.

ELFA’s monthly leasing and finance index (MLFI-25), which reports economic activity from 25 companies representing a cross-section of the equipment finance sector, recorded overall new business volume for January at $6.2 billion, up 3% year-over-year compared to new business volume in January 2016.

The association noted volume was down 49% month-to-month from $12.1 billion in December, following the typical end-of-quarter, end-of-year spike in new business activity.

Receivables over 30 days were 1.70%, up from 1.40% the previous month and up from 1.30% in the same period in 2016. Charge-offs were 0.43%, up slightly from 0.42% the previous month, and up from 0.26% in the same period last year.

Credit approvals totaled 75.4% in January, down from 77.4% in December. Total headcount for equipment finance companies was up 18.3% year-over-year, a spike largely attributable to acquisition activity at one reporting company in particular.

ELFA president and CEO Ralph Petta said: “After the first year-over-year (2015-2016) decline in new business volume since the financial crisis, the increase in January 2017 originations gets the year off on the right foot.

“The 3% increase coincides with analysts’ forecasts for more sustained and stronger equipment finance industry growth over the next 12 months.”

Petta went on to highlight possible future trends when he stated: “Yet to be known, however, are the potential effects of more business-friendly policy pronouncements by the new Trump administration on the amount and nature of capital investment in the US. Credit quality appears to be eroding slightly as delinquencies and charge-offs head upward, off their historic lows of 2015-2016.”

One of the survey participants, Harry Kaplun, president speciality finance, Frost Bank, commented: “The high level of economic confidence not only shows in more originations but also in backlogs this year. Higher equipment finance backlogs suggest sustainable growth throughout 2017.”

There is support for ELFA’s findings from the latest Experian/Moody’s Analytics Main Street Report, which revealed a positive finance market based on key factors from Q4 2016, which measure the overall health and well-being of the small-business sector.

According to the report, the fourth quarter was defined by an increased willingness to lend, as results show a spike in total loan balance growth: a 7.7% increase from the third quarter and a 10.3% increase year-over-year. Despite the balance growth, utilization rates among small businesses remain just under 40%, leaving plenty of capacity for small-business owners with current available credit.

“The overall health of the small-business sector could depend on changing fiscal policies and how those policies will affect the small-business owner,” said Gavin Harding, senior business consultant for Experian. “For example, if the Federal Reserve tightens monetary policy faster than anticipated, an interest rate shock could quickly cause balance growth to slow and delinquencies to rise, delivering a jolt to small business and consumption overall.”

Mark Zandi, chief economist for Moody’s Analytics, said: “The business and credit cycles are in their sweet spots. The economy is near full-employment, credit is flowing freely and credit quality is good and improving. Increasingly confident small businesses are willing and able to borrow more to help play their role powering economic growth.”

There is further positive news from an online survey conducted by Balboa Capital, a leading small business loan provider and equipment financing company. This revealed that nine out of 10 small business owners had prepared for the 2017 tax season early, and that 40% of small business owners surveyed expect to receive a business tax refund. Of these, 83% plan on putting it toward business-related expenses and initiatives