US equipment finance industry well-positioned for future growth

Bill Verhelle, chairman, Equipment Leasing & Finance Foundation, and chief executive officer of Harvard Partners, said: “Overall, equipment finance industry results were mixed in 2016. Several performance metrics declined compared with exceptional performance in recent, prior years.

“This year, the industry appears set for improved performance. Confidence is high and businesses are investing in new equipment. Uncertainty continues, but industry fundamentals remain solid. I’m cautiously optimistic.”

The report’s analysis shows that despite weak equipment and software investment growth in 2016, the investments that occurred were generally more likely to be financed than in previous years, with independents winning most of the new business.

Independent equipment finance companies experienced 12% growth, while banks expanded at 5% and captives declined by 5.9%. Productivity (new business volume per sales full-time equivalent) decreased nearly 6% driven by declines of banks and captives, while independents’ productivity improved.

Delinquencies, charge-offs, and non-accruals remained low, and industry experts express little concern about the state of portfolios due to continued cautiousness toward underwriting.

Industry profitability took a hit in 2016 with declines in return on average equity, return on total average assets and income before taxes. A rising interest rate environment caused an uptick in costs and interest expense ratios. The decline in profitability, however, does not appear to have been caused by a reduction in credit quality.

The report forecasts the equipment finance industry is poised to benefit from higher confidence going forward. In 2016, a combination of weak overall growth in the US economy and an oil price decline hangover affected much of the energy and industrial sectors.

However, the outlook for business investment and new business volume growth in 2017 is encouraging. As of August, cumulative equipment finance new business volume for 2017 stands 5.5% above last year’s level.

The analysis points out that government gridlock and political shifts are causing an uncertain policy environment for the US economy and the equipment finance industry.

At the same time, macroeconomic developments, including low energy prices, a US manufacturing revival and changes in retailing are forcing equipment end-users to adapt their business models, creating new equipment finance industry opportunities.

Emerging technologies including artificial intelligence and machine learning, the Internet of Things and blockchain are beginning to take hold and may help drive future growth, the Foundation predicts.

The 2017 State of the Equipment Finance Industry Report is available free from https://www.leasefoundation.org/industry-resources/state-of-the-industry.