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Equipment Financing Cools Off

Leases and loans to fund business equipment purchases fell 7 percent in August compared with a year ago, according to the Equipment Leasing and Finance Association.

Combined with last month’s reports of weak demand for durable goods, the Equipment Leasing and Finance Association’s (ELFA) survey results released Monday suggest U.S. companies may be moderating the pace of or even delaying plans for capital spending.

The 25 equipment financiers polled by ELFA as part of its Monthly Leasing and Finance Index (MLFI-25) reported a sizable decline in business equipment financing volumes for August. New business volume dropped 11 percent in August compared with July and fell 7 percent year-over-year, ELFA said. It was the first month-to-month drop in six months, and August’s total of $6.4 billion financed was the lowest total volume since February 2013.

The downward drift may be more than just businesses “taking a summer breather” from investing in commercial equipment like copy machines, computer hardware and software, and industrial machinery.

In the report accompanying the numbers, ELFA president William G. Sutton said, “Uncertainty surrounding heightened U.S. involvement in the Syrian conflict coupled with a potential federal government shutdown and a looming debt-ceiling fight between Congress and the Obama Administration may be responsible for some businesses pulling back on their equipment acquisition plans.”

Last month, the U.S. Commerce Department reported that orders of durable goods — which include everything from aircraft to computers to toasters — dropped 7.3 percent after three straight months of gains. Non-defense capital goods orders, which exclude aircraft, dropped 3.3 percent. 

On Wednesday, the Commerce Department publishes durable goods order numbers for August, and analysts are expecting a less than 1 percent decline.

Despite the late-summer swoon, cumulative new business volume for equipment financing companies this year is still 8 percent ahead of 2012, and the portfolios of equipment financiers remain healthy, according to ELFA. For August, equipment finance firms reported receivables over 30 days at 1.6 percent, up only one-tenth a percent from July, and charge-offs at 0.4 percent, up only slightly from an all-time low of 0.3 percent.

Although new-business dollar volumes for August were low, 56 percent of the independent financing companies, captive finance units and banks that participate in the ELFA survey reported submitting more transactions for credit approvals than they did in July. In addition, credit approval rates hit 79.1 percent, compared with July’s 78.6 percent.

In general executives in the equipment finance sector are optimistic about the sector. The Equipment Leasing & Finance Foundation’s monthly confidence index, released Friday, showed that 33.3 percent of surveyed executives think demand for leases and loans to fund capital expenditures will increase over the next four months, compared with 23.5 percent who thought so in the prior month’s survey.

One thought on “Equipment Financing Cools Off

  1. The business uncertainty created from the continual barrage of macro political events, certainly seems to have take it’s toll on funding for this small period of time. We however have not seen a slow down at all in the need for equipment financing in the middle market.

    Great article by the way from CFO.com in the latest issue entitled “Cities on the Brink”

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