Equipment Financing

Equipment Financing Credit Quality Slips

Origination volume in February was nearly flat, and receivables over 30 days and charge-offs 'inched upward,' says ELFA.
Katie Kuehner-HebertMarch 23, 2016
Equipment Financing Credit Quality Slips

Equipment financing held steady in February, though credit quality slipped a bit amid continued economic uncertainty, according to the Equipment Leasing and Finance Association’s Monthly Leasing and Finance Index.

Overall new business volume for the 25 equipment finance firms surveyed was $6.1 billion in February, up 2% percent from January, but down 2% from February 2015. Year to date, cumulative new business volume dropped 7% compared with 2015.

However, credit quality appears to be slipping, according to the survey. Receivables over 30 days were 1.4%, up from 1.3% the previous month and 1.15% in the same period in 2015. Charge-offs were 0.37%, up from 0.26% in January.

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“While February origination volume is virtually flat when compared to January and the year-earlier period, credit quality shows signs of deterioration, with delinquencies and charge-offs inching upward over the same time intervals,” ELFA president and chief executive Ralph Petta said in a press release. “Both metrics are worth keeping a close eye on as economic uncertainty continues to act as a drag on U.S. businesses’ decisions to invest in capital equipment.”

However, the metrics seem to run counter to the ELFA’s Monthly Confidence Index, which increased to 51.6 in March, from 48.3 in February, Petta said.

Credit approvals totaled 79.2% in February, up from 78% in January, and total headcount for equipment finance companies was up 3% year over year, both positive signs.

Dave Fate, president and CEO of ELFA member firm Stonebriar Commercial Finance in Plano, Texas, told ELFA that while the trend lines for the first quarter were not too dissimilar to 2015, the group expects commodity driven markets to be even more sensitive in 2016 due to shrinking capital resources, a slowing global economy, and a more complex geopolitical environment.

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