Equipment finance industry performance remains relatively strong, according to the 2017 State of the Equipment Finance Industry Report. The report was released at the 56th Annual Convention of the Equipment Leasing and Finance Association (ELFA). Despite a subpar 2016 for the industry in terms of some performance metrics (compared to prior years), the commercial leasing and financing business appears well-positioned for the future. Equipment financing remains an attractive way for businesses to replace equipment and expand operations. The study, published by the Equipment Leasing & Finance Foundation and authored by Keybridge Research, offers a variety of economic data and analytical tools to identify and interpret trends in the equipment finance industry.

“Overall, equipment finance industry results were mixed in 2016. Several performance metrics declined compared with exceptional performance in recent, prior years,” said Bill Verhelle, Chairman, Equipment Leasing & Finance Foundation, and Chief Executive Officer of Harvard Partners LLC. “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,” said Verhelle.

Key Findings

Highlights from the 2017 State of the Equipment Finance Industry Report include:

• Independents gained despite weak industry growth. 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 new business volume growth at just 2.5% in 2016, according the ELFA’s Survey of Equipment Finance Activity, 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.
• Portfolio performance, financials and productivity eased from 2014 and 2015 levels. 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 equipment finance industry is poised to benefit from higher confidence. In 2016, the deceleration in new business volume growth was driven by a combination of weak overall growth in the U.S. economy and an oil price decline hangover affecting large swaths 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.
• Opportunities exist amid uncertainties. Government gridlock and political shifts are causing an uncertain policy environment for the U.S. economy and the equipment finance industry. Meanwhile, macroeconomic developments, including low energy prices, a U.S. 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 2017 State of the Equipment Finance Industry Report is available for free download at https://www.leasefoundation.org/industry-resources/state-of-the-industry. Foundation studies are available for free download from the Foundation’s online library at http://store.leasefoundation.org/.