WASHINGTON, DC–Although the outlook for the U.S. economy is uncertain, equipment finance industry leaders expect moderate portfolio growth in 2021. But performance will vary by sector. These findings and others are according to a new study, Equipment Finance in 2020: Special COVID-19 Impact Issue, released by the Equipment Leasing & Finance Foundation (Foundation).
The study, commissioned by the Foundation and prepared by Keybridge, reveals that the industry expanded from an estimated $903 billion (revised) in 2018 to $992 billion in 2019. This represents approximately 53 percent of total equipment and software investment, up from just below 50 percent in 2018. The propensity to finance equipment acquisitions increased in 2019 and has continued to rise in 2020 as long-term interest rates decline.
The report is based on data provided by a wide range of industry leaders and Keybridge, the Foundation’s economic researchers. It summarizes the state of the U.S. economy heading into the pandemic and it discusses COVID-19 and the resulting recession with a focus on the equipment finance industry. And it includes a sneak peek at the economic trends that will shape the industry in 2021.
Here are the key findings:
- New business volume growth. Despite decelerating investment spending in 2019, the equipment finance industry saw new business volume growth accelerate to 4.7 percent. This was at least in part due to rising propensity to finance equipment and software acquisitions, which, in turn, was supported by the Federal Reserve lowering interest rates in the second half of the year;
- Industry fallout. The equipment finance industry, like the rest of the economy, suffered at the onset of the COVID-19 pandemic. The Federal Reserve slashed rates to zero and Congress enacted $3 trillion in stimulus measures for consumers, businesses, and state and local governments. Meanwhile, many lenders and most equipment finance firms offered temporary payment relief in an effort to ‘pause the payment clock’ until the economy could restart;
- Equipment vertical performance. The industrial core of the economy — and several key equipment verticals along with it — have rebounded more quickly than initially anticipated. New business volume in the equipment finance industry staged a comeback, with some verticals (e.g. computers and software) benefiting from the pandemic as 30–40 percent of the U.S labour force transitioned to remote work. But other equipment verticals, such as aircraft, office equipment, and oil and mining equipment, continued to struggle due to the pandemic and resulting fallout; and
- Industry outlook. After the U.S. economy suffered its steepest and deepest decline in GDP since 1946, the outlook for it in 2021 is among the most uncertain on record. However, the business environment for equipment finance firms is expected to be more favourable in 2021, though performance will be highly sector dependent. Banks are widely expected to step back from smaller-ticket deals and focus on core markets, which may provide an opportunity for independents to increase market share. Some industry consolidation may occur, particularly among firms with outsize exposure to industries that are heavily impacted by COVID-19. While a near-term spike in inflation appears unlikely, it is a potential development worth monitoring given the impact it could have on the industry.
“This Special COVID-19 Impact Issue provides a unique and timely comprehensive view of the economic impact of the pandemic with a special focus on the equipment finance industry,” said Scott Thacker, Foundation chair and CEO of Ivory Consulting Corporation. “Looking toward 2021, there will be substantial headwinds and heightened uncertainty. However I am optimistic that the equipment finance industry can and will adapt as these severe disruptions also bring great opportunities which will guide us all to brighter days in the year ahead.”