Equipment Finance Advisor sat down with Bill Hughes, Executive Vice President of Linedata Capitalstream, Lending & Leasing, to talk about his perspective on what to expect in 2015.

What areas of the lending & leasing industry experienced the most growth in 2014? And, where do you expect to see growth this year?

Some of the areas where we’re seeing higher growth, particularly leasing growth, are in aircraft, transportation, computers and software. This is largely due to pent-up demand and delayed investment from companies who were waiting for the economy to improve. While growth has been pretty muted in other industries, 2014 saw a boom in oil and gas exploration and energy investments, as well as in high tech fields, like cloud computing.

Many of the “booms” in 2014 were regional, for example, technology in Silicon Valley, and shale exploration in North Dakota and Texas. New technologies demonstrated improved cost savings which drove overall technology investments, and oil prices continued to fall. With consumer and business confidence growing, and lower oil and gas prices now benefiting the broader economy, I expect to see lending and leasing growth in a broad range of sectors in 2015.

What challenges or obstacles potentially held back other slow or underperforming areas?

Our clients are telling us that their margins have become very thin, due to liquidity, and increased competition. The top priority is to make sure that you get good credit quality with acceptable pricing. This presents many challenges, including that organizations have limited resources and must only pursue the most viable deals while trying to generate the volume needed to hit increasing growth targets. 

Interest rates should continue to remain relatively low in 2015, but competition will remain high. For example, banks are increasingly getting into equipment and vehicle finance, where you traditionally find higher rates. Older businesses are finding that they need to increase efficiency and lower prices to compete with non-traditional lenders entering into this segment.

The bottom line is that overall interest rates are unlikely to rise much in 2015, maybe slightly, but the recovery isn’t strong enough to aggressively raise rates, and this will continue to pressure margins and growth.

What are your clients looking for in terms of solutions that you can provide to help them with these problems, specifically improving efficiency and dealing with increasing competition?

Our clients aren’t generally concerned about rate increases, but the few that are, want to know if they have the right mix of short-term adjustable pricing in their portfolios to determine how quickly they can pass that increase onto new deals. This impacts the types of products that they can offer, but mainly, they want to make sure they’re keeping costs down and remaining nimble in terms of process.

We are seeing non-traditional financing players coming into the space that are changing the nature of the competition, so banks need to be able to move quickly to implement new processes. At the same time, they’re restrained by increasing regulatory burden, so they’ve got to make certain that any process changes are compliant, in regards to regulatory concerns. They are looking for systems that ensure that they can achieve all of these goals and not have to worry about compliance reporting.

Lastly, are there any regulations or international restrictions that you see threatening the industry in 2015?

Domestically, there’s not much new on the horizon. Dodd Frank changes are slowly being implemented and for the most part those were already taken into account in 2014. The Republican Congress could further delay or weaken Dodd Frank rule implementation, so nothing is likely to change on that front in the near future. While international regulations might not be a current threat, certainly geo-political events could affect the US economy at any time.

Future disintermediation is something which is becoming an interesting topic in the industry. It’s still a little early, but I don’t think it’s something that the banks or leasing companies can ignore forever. The emergence of new business models, such as the Lending Club and similar options, are small ticket now, but I foresee that they will grow into more complex, larger kinds of lending, and even leasing.

Just like banks ignored PayPal for far too long, I hear people dismissing the concept of peer-to-peer lending as “cute,” but not something to worry about. But ultimately, new regulatory challenges, faster trend reaction, and disintermediation all require something similar—a technology base that is deeply adaptable, so that firms can respond quickly.