The financing of capital equipment, often seen as a proxy for capital spending, softened in July as new business volume reported by a cross-section of the financing industry fell 2% year-over-year. The $9.9 billion in new business volume for the month also represented a 9% drop from June’s $10.9 billion.
ELFA President and CEO Ralph Petta said although business held up pretty well compared to last year, “respondents to [ELFA’s Monthly Leasing and Finance Index] are reporting some softness. This coincides with expectations by economists that overall investment in equipment and software will slow down in the second half of 2023.”
Credit approvals by equipment lessors and lenders were at 75.3% of applications submitted, down from 76.1% in June. And receivables over 30 days at the captives, independent lenders, and bank-affiliated lenders that finance equipment totaled 2.3%, the highest level in over two years.
However, like other lenders, equipment finance companies are not seeing a large wave of charge-offs, as they did not increase as a percentage of net receivables in July.
Year-to-date, cumulative new business volume for equipment financiers was up 1.3% compared with 2022, ELFA pointed out. But lenders do expect a slowdown in the industry.
“Rising interest rate environments will slow consumer spending. Cheap money notes that begin to expire will be replaced by more expensive money, and I expect new investments will be reduced,” said Craig Ault, chief revenue officer of Honour Capital.
Total headcount for equipment finance companies was down more than 7% year-over-year in December 2022, but the reduction in the total number of employees has slowed in 2023. Still, July saw a 2.1% drop in headcount.
Equipment lenders provide capital to businesses seeking to acquire productive assets to run their businesses. They finance everything from office furniture to medical equipment, farm machinery, and data centers.
(ELFA) keeps tabs on the equipment leasing and finance industry through its Monthly Leasing and Finance Index (MLFI-25), which reports economic activity from 25 companies representing a cross-section of the $1 trillion equipment finance sector.