The State Of The Equipment Leasing And Finance Industry
Small business owners looking to save working capital and boost revenues should consider leasing equipment instead of outright purchasing it. There are many significant benefits for owners who lease heavy machinery and equipment including saving money, tax breaks and a lack of equipment depreciation.
Heading into the fourth quarter, despite a decline in business volume, the equipment leasing and financing industry looks strong. The Equipment Leasing and Finance Association’s Monthly Leasing and Finance Index showed August experienced a slight dip in new business volume, which amounted to $6.9 billion. This represents a drop of 18 percent from July’s $8.4 billion reading and a 7-percent fall from August 2014’s reading. However, compared to this point in 2014, cumulative new business volume is up 6 percent.
“As the summer winds down, the equipment finance sector appears to be performing well,” said ELFA President and CEO William G. Sutton. “Despite the slight decline in August’s year-over-year volume, new business activity is up on a cumulative year-to-date basis. Loans and leases in respondents’ portfolios are performing well, with credit losses remaining in very acceptable ranges. With the Fed poised to increase short-term interest rates for the first time in nine years, we will be watching very carefully any impact – perceived or real – on the overall U.S. economy and our sector in particular. Most economic indicators continue to trend positively, contributing to our belief that these factors will help foster a favorable climate for continued investment by American businesses in capital equipment.”
Specifically, the leasing and financing industry saw credit approvals experience a rise, going from 78.6 in July to 79.3 percent in August. Equipment finance company headcounts jumped 7.4 percent compared to last year. In addition, receivables over 30 days dropped from 1.01 percent in July to hit 0.99 in August, while charge-offs hit 0.22 percent, a 3-percent uptick over July’s 0.19 reading.
Equipment leasing confidence hits a bump
While the total business volume of the equipment financing and leasing industry experienced a slight drop-off compared to both July and year-over-year totals, overallconfidence in the industry also declined in September. According to the Equipment Leasing and Finance Foundation’s September 2015 Monthly Confidence Index for the Equipment Finance Industry, the overall equipment financing market confidence dropped 6.3 points to settle in at reading of 61.1.
When surveyed, 22.2 percent respondents from the $903 billion equipment finance sector reported that they believed businesses will experience better conditions over the remaining four months of the year, while 70.4 percent thought there will be no change. In the previous month’s survey, these numbers were 36.4 percent and 63.6 percent, respectively. Meanwhile, 7.4 percent think business conditions will deteriorate, whereas none thought this last month.
In terms of demand for leases and loans to fund capital expenditures (capex), 29.6 percent of the executives surveyed believed it will increase, a decline from August’s 40.9 percent. However, 59.3 percent think there will be no change, a figure that stayed the same month to month. And, although last month no respondents thought demand capital expenditures will decline for the rest of the year, this month 11.1 percent think demand will decrease.
While only 25.9 percent of respondents anticipate access to more capital for funding equipment acquisitions, 70.4 percent indicated they don’t expect any changes, which is up 2.2 percentage points from August. Last month, none of the respondents expected access to capital to decline, however this month 3.7 percent believe that will be the case.
Many in the industry are pointing their fingers at the U.S. Federal Reserve and the central bank’s uncertainty over increasing the benchmark short-term interest rates. Since an increase in rates may potentially spur more equipment financing and leasing, many small business owners might have been waiting to see what the Fed would do. With the Fed not making a move to hike the historically low interest rates, many in the equipment leasing industry believe rising interest rates could be a catalyst to force companies into the capital equipment sector.
As we move into the fourth quarter and as many market watchers believe the Fed will raise interest rates before the end of the year, small business owners should consider equipment leasing and financing to help meet year-end budget goals and boost revenues.