As banks tighten credit, equipment financers see opportunity
Equipment financiers remain optimistic about 2023, even as inflation and recession fears continue to linger.
“Our folks haven’t missed a beat during the last recession; they haven’t missed a beat when interest rates are high, they don’t miss a beat when interest rates are low,” Ralph Petta, president and chief executive of the Equipment Leasing and Finance Association (ELFA), told Equipment Finance Connect. “Leasing and financing makes it a lot easier for small and large businesses to acquire equipment.”
Some equipment financiers that began operating before the Great Recession, such as FORT Capital Resources, are finding ways to continue to provide financing through difficult economic conditions, but even the 2007-founded company points out that nonessential equipment will be hit harder than most in the case of a slowdown.
“I would guess most of the slowdowns in equipment finance, and increasing defaults, are for the non-essential use equipment,” Brian Mulder, FORT Capital Resources vice president of operations and program management, told EFC. “If it’s just a nice to have, customers are probably cutting that out, but as far as essential equipment goes, they still have to buy the equipment, so [we] haven’t seen a big change yet.”
Tightening credit standards
There may even be an opportunity for some equipment financiers to gain market share as banks tighten credit standards amid recessionary pressures, Richard Hickmon, VFI Corporate Finance’s vice president of intermediary relations, told EFC.
“When we look at things like recessions … that doesn’t really impact us the same way,” Hickmon said. “When we get into a recession and banks tighten their windows, it really helps us because we can come in and… we can continue to lend into those different industry segments.”
Investment in the equipment finance industry is projected to grow in 2023, according to the Equipment Leasing and Finance Foundation, a foundation owned by ELFA.
“We’re estimating in 2023 that equipment and software investment is going to be about 4.2% [growth],” Petta said. “We’re not looking for a contraction, we’re not looking for a downturn.”
Not spared from a recession
But the equipment finance industry won’t be completely spared from a recession, ELFA’s Petta said.
“I don’t want to minimize this because obviously a recession is a bad thing, and if the economy does slow, and expansion and growth is put on hold, it affects a lot of people, and it could very well affect those that are providing financing for these assets,” he said. “It could have an impact on the equipment finance industry.”
As interest rates continue to rise and unemployment hit a 53-year low in January, the equipment finance industry continues to watch current U.S. economic conditions. More than 57% of equipment finance industry executives believe that the U.S. economy will “stay the same” over the next six months, according to the ELFF’s January Monthly Confidence Index. About 34.6% of executives expect conditions to worsen and 7.7% expect conditions to improve.
Despite a potential recession, confidence continues to grow in the equipment finance industry, and financing isn’t likely to see a sharp dip, Petta said.
“As long as there’s a need, [ELFA’s members] will be there to provide the funding to be sure that small businesses and large businesses acquire equipment,” he said.