Lease Finance Industry Confidence Dips in May

Confidence in the $628 billion equipment finance sector is down this month, according to the Equipment Leasing & Finance Foundation’s May Monthly Confidence Index. Overall, confidence in the equipment finance market is 59.2, down slightly from the April index of 62.1, reflecting uncertainty about the pace of U.S. economic growth and concerns about global political and economic factors.

When asked about the outlook for the future, MCI survey respondentRuss Nelson, President, Farm Credit Leasing, commented, “Demand for loans and leases in the industries we serve remains closely tied to external economic factors and conditions, many of which remain volatile and uncertain for the remainder of 2012. Year-to-date activity for equipment has remained strong and we are cautiously optimistic concerning the next eight months.”

When asked to assess their business conditions over the next four months, 17.1% of executives responding said they believe business conditions will improve over the next four months, down from 23.5% in April. 77.1% of respondents believe business conditions will remain the same over the next four months, up from 76.5% in April. 5.7% believe business conditions will worsen, up from none the previous month.

20% of survey respondents believe demand for leases and loans to fund capital expenditures (capex) will increase over the next four months, a decrease from 23.5% in April. 77.1% believe demand will “remain the same” during the same four-month time period, up from 76.5% the previous month. 2.9% believe demand will decline, up from none in April.

25.7% of executives expect more access to capital to fund equipment acquisitions over the next four months, down from 26.5% in April. 74.3% of survey respondents indicate they expect the “same” access to capital to fund business, an increase from 73.5% the previous month. No survey respondents expect “less” access to capital, unchanged from April.

When asked, 31.4% of the executives reported they expect to hire more employees over the next four months, down from 32.4% in April. 62.9% expect no change in headcount over the next four months, a decrease from 67.6% last month, while 5.7% expect fewer employees, up from none in April.

88.6% of the leadership evaluates the current U.S. economy as “fair,” up slightly from 88.2% last month. 11.4% rate it as “poor,” down slightly from 11.8% in April.

22.9% of survey respondents believe that U.S. economic conditions will get “better” over the next six months, down from 29.4% in April. 65.7% of survey respondents indicate they believe the U.S. economy will “stay the same” over the next six months, down from 70.6% in April. 11.4% believe economic conditions in the U.S. will worsen over the next six months, an increase from none who believed so last month.

In May, 37.1% of respondents indicate they believe their company will increase spending on business development activities during the next six months, up from 35.3% in April. 62.9% believe there will be “no change” in business development spending, down from 64.7% last month, and no one believes there will be a decrease in spending, unchanged from last month.

Survey Comments from Industry Executive Leadership:

Depending on the market segment they represent, executives have differing points of view on the current and future outlook for the industry.

Independent, Small Ticket:

“We continue to experience a weaker demand level than we would have expected at this time,” said Valerie Hayes Jester, President, Brandywine Capital Associates. “Small business owners seem reluctant to invest in business equipment expansion. After the robust end to 2011, we were hopeful that our customers were ready again to take on new equipment, and with such low interest rates still in place, the financing that we provide. It seems as though, absent stimulus, growth is flat. My concern is that we could see this trend continue until after the elections in November”

Bank, Small Ticket:

“Equipment leasing continues to increase as the economy in the United States continues to improve, albeit at a measured pace, especially for small to medium sized businesses,” said Ron Arrington, Global President, Vendor Finance, CIT. “When companies do invest, they are looking for total solutions beyond just the equipment and including all the services that surround it. Those equipment providers that can provide total service-related solutions are seeing a new segment of growth for their business and equipment leasing is an important component of this total solution by providing capital while leveraging expertise in billing and services.”

Bank, Middle Ticket:

“Generally equipment finance is continuing to improve,” said Harry Kaplun, President, Frost Equipment Leasing and Finance. “Some industries like energy and energy-related are particularly robust. Other traditional equipment industries like construction are slowly improving.”

“We are cautiously optimistic about the improving, short-term opportunity for equipment finance companies serving, large creditworthy borrowers in the United States,” said Bill Verhelle, CEO, First American Equipment Finance, a City National Bank Company.

“Many global political and economic headwinds are causing lack of growth. Demand for quality equipment finance transactions is high and there is too much money chasing too few quality deals and as such spreads continue to be pressured,” an anonymous source said.

Related Editorial:

Equipment Leasing in March Up 36% over February

10 Equipment Acquisition Trends to Watch

Proposed Leasing Changes Could Add Costs

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