Equipment Leasing and Finance industry confidence improves in May
New data reveal COVID-19 impact.
The Equipment Leasing & Finance Foundation releases the May 2020 Monthly Confidence Index for the Equipment Finance Industry (MCI-EFI), an index that reports a qualitative assessment of prevailing business conditions and expectations for the future as reported by key executives from the $900 billion equipment finance sector.
Overall, confidence in the equipment finance market improved with an index of 25.8, up from the historic low in April of 22.3.
The Foundation also releases highlights of its newly launched COVID-19 Impact Survey of the Equipment Finance Industry, a monthly survey of industry leaders designed to track the impact of the coronavirus pandemic on the equipment finance industry. From 101 survey responses collected from May 4 through 8, results show that 93 percent of equipment finance companies have offered payment deferrals. A large majority (88 percent) of companies have not furloughed or laid off employees. Comments from survey respondents follow MCI-EFI survey comments below, and additional survey results are available at https://www.leasefoundation.org/industry-resources/covid-impact-survey/.
When asked about the outlook for the future, MCI-EFI survey respondent Alan Sikora, CLFP, CEO, First American Equipment Finance, an RBC / City National Company, said, “While there is currently much uncertainty in the world, the U.S. equipment leasing and finance industry has a history of resiliency during times of crisis. We will get through this, and many companies will innovate and emerge stronger.”
May 2020 survey results:
The overall MCI-EFI is 25.8, an increase from 22.3 in April.
• When asked to assess their business conditions over the next four months, 3.3 percent of executives responding said they believe business conditions will improve over the next four months, down from 6.9 percent in April. Ten percent believe business conditions will remain the same over the next four months, an increase from none the previous month. 86.7 percent believe business conditions will worsen, a decrease from 93.1 percent in April.
• Just 6.7 percent of the survey respondents believe demand for leases and loans to fund capital expenditures (capex) will increase over the next four months, relatively unchanged from April; 6.7 percent believe demand will “remain the same” during the same four-month time period, an increase from 3.5 percent the previous month. Notably, 86.7 percent believe demand will decline, a decrease from 89.7 percent in April.
• None of the respondents expect more access to capital to fund equipment acquisitions over the next four months, unchanged from April; 73.3 percent of executives indicate they expect the same access to capital to fund business, an increase from 53.6 percent last month. Just 26.7 percent expect less access to capital, a decrease from 46.4 percent the previous month.
- When asked, 16.7 percent of the executives report they expect to hire more employees over the next four months, an increase from 6.9 percent in April; 60 percent expect no change in headcount over the next four months, a decrease from 69 percent last month. Only 23.3 percent expect to hire fewer employees, down from 24.1 percent the previous month.
- None of the leadership evaluate the current U.S. economy as excellent, unchanged from the previous month. 10 percent of the leadership evaluate the current U.S. economy as fair, up from none in April. 90 percent evaluate it as poor, down from 100 percent last month.
- A full 20 percent of the survey respondents believe that U.S. economic conditions will get better over the next six months, a decrease from 27.6 percent in April; 30 percent indicate they believe the U.S. economy will stay the same over the next six months, an increase from 6.9 percent last month. Fifty percent believe economic conditions in the U.S. will worsen over the next six months, down from 65.5 percent the previous month.
- In May, 23.3 percent of respondents indicate they believe their company will increase spending on business development activities during the next six months, an increase from 17.2 percent last month; 33.3 percent believe there will be no change in business development spending, down from 48.3 percent in April. Almost half, 43.3 percent, believe there will be a decrease in spending, an increase from 34.5 percent last month.
May 2020 MCI-EFI survey comments from industry executive leadership:
Bank, Middle Ticket
“We are seeing opportunities with customers who have not leased with us in the past as they look to conserve working capital. We are seeing an increase in restructure requests and would expect restructure requests to continue for the balance of the year.” -- Michael Romanowski, President, Farm Credit Leasing
Independent, Middle Ticket
“The actions by Congress and the Federal Reserve have gone a long way to increasing confidence in our economy and financial markets. This will be a long road, with losers and winners, and only time will tell how our economy and way of life is changed after this health crisis is resolved.” -- Bruce J. Winter, President, FSG Capital, Inc.
Executive comments from COVID-19 impact survey of the equipment finance industry
Other, Middle Ticket
“We focus on understanding how the critical use/revenue generating assets we lend against generate cash flow for our borrowers. A deeper understanding of the borrower's business helps correlate the collateral and credit risk with the ability to repay. These fundamentals won't change in the medium or long term but, to a certain degree, the current short-term impacts of COVID-19 cannot be mitigated in certain industries. To manage a diversified portfolio, we believe working with borrowers to fully understand how COVID-19 is currently impacting their business and may change their business going forward will be key to mitigating potential loss and recovery going forward.” -- Aaron Foglesong, Managing Director, Indigo Direct Lending, LLC
Bank, Middle Ticket
“In the short term, our focus is to help the recovery of clients by providing reasonable payment relief. In the medium term we will focus on staying firm on term, structures, marketable pricing and other factors so that our industry credit and business guidelines do not become inverted (too aggressive). In the long term, we need to be prepared for service industries that will go through significant consolidation or contraction due to those smaller to mid-size clients who were not able to recover.” -- Michael Urquhart, President and CEO, People’s Capital and Leasing Corp.
Care to participate in the COVID-19 Impact Survey of the Equipment Finance Industry?
Survey responses are limited to one per company. If you did not receive a survey and would like to participate, please contact Stephanie Fisher, sfisher@leasefoundation.org, by May 31 to determine eligibility for inclusion in the June survey.
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