Month: November 2016

The Equipment Leasing & Finance Foundation’s Monthly Confidence Index (MCI) for November 2016 revealed a slight easing of confidence in the equipment finance market, standing at 54.6 compared to October’s 56.0. Notably, the survey responses were collected before the U.S. elections. This article delves into the insights provided by industry executives and explores their outlook for the future of the equipment leasing industry in light of the recent political developments.

Post-Election Optimism

Valerie Hayes Jester, president of Brandywine Capital Associates, expressed optimism about the industry’s future, especially after the election. She stated that the equipment leasing sector has been expanding its market share and exploring new opportunities within commercial segments. Despite moderately increasing delinquency statistics, portfolios continue to perform well. With the elections over, Jester hopes that small and mid-size business owners will regain confidence and proceed with expansion projects that had been put on hold due to uncertainty in Washington.

Business Conditions Outlook

When asked about their business conditions for the next four months, 13.8% of executives anticipate an improvement, marking an increase from October’s 12.1%. However, 17.2% of respondents expect a decline, a notable rise from the previous month’s 6.1%. This divergence in outlook indicates a sense of caution among industry leaders.

Demand for Leases and Loans

Survey results showed a decrease in the number of respondents who expect demand for leases and loans to fund capital expenditures to increase, down to 13.8% from the previous month’s 24.2%. Conversely, the percentage of those who anticipate decreased demand slightly declined from 18.2% in October to 17.2% in November. This implies that the majority (69%) believe that demand will remain steady.

Regional and Industry Growth

While national demand for equipment financing appears tepid, regional and industry-specific demand remain vibrant. Harry Kaplun, president of Specialty Finance at Frost Bank, highlights the growth in certain areas, fueled by population migration to more business-friendly locations. This trend suggests that economic growth is not uniform across the country.

Access to Capital

The majority (82.8%) of executives expect access to capital for business funding to remain unchanged in the next four months. There were declines in both those who believe access will improve and those who think it will worsen compared to the previous survey. This sentiment indicates a relatively stable financing landscape in the near future.

Hiring Expectations

Regarding employment, 34.5% of executives anticipate hiring more employees over the next four months, reflecting a positive increase from October’s 30.3%. However, a slightly higher number of companies (10.3%) expect to reduce their workforce, compared to the previous month’s reading of 9.1%. This mixed outlook may indicate uncertainty about the economy’s direction and its impact on businesses.

Economic Outlook

The current evaluation of the U.S. economy shows an increase in the number of executives (100%) who consider it fair, compared to 93.9% in the previous month. The future economic outlook reveals both believers and detractors. While 17.2% of respondents anticipate improved economic conditions over the next six months (up from 15.2% in October), an equal percentage (17.2%) expects the opposite, up from the previous month’s 15.2%.

Investment in Business Development

Looking ahead, 37.9% of respondents plan to increase spending on business development activities in the next six months, a slight uptick from October’s 36.4%. Conversely, 3.4% of executives expect a decrease in spending, an increase from the previous month’s none. This data suggests cautious optimism among industry players regarding future investments.

The November 2016 Equipment Leasing & Finance Foundation’s Monthly Confidence Index indicates a slight dip in confidence, primarily attributed to the uncertainties surrounding the U.S. elections. However, industry executives remain cautiously optimistic, with many anticipating growth in business conditions and employment opportunities. The equipment leasing sector continues to adapt to market changes and explore new avenues for expansion. While the future economic landscape remains uncertain, the equipment leasing industry appears poised to navigate challenges and capitalize on emerging opportunities.

The Equipment Leasing and Finance Association (ELFA) stands as a vigilant guardian over the equipment finance industry, keeping a watchful eye on its trends and challenges. In recent years, the industry has enjoyed significant growth despite economic headwinds, demonstrating its resilience and adaptability. However, as the landscape evolves, the ELFA recognizes the need for continued vigilance and adaptation to address emerging trends and navigate through potential obstacles.

A Growing Industry: ELFA’s Past Success
The equipment finance industry has thrived in recent years, as evidenced by the ELFA’s 2016 Survey of Equipment Finance Activity (SEFA), which reported a 12.4% increase in new business volume in 2015. This marked the sixth consecutive year of growth for the industry. Despite challenging economic conditions, equipment finance companies have excelled in offering alternative financing solutions, outpacing the overall market.

Emerging Trends: Opportunities for Lessees
As the industry evolves, new trends present both opportunities and challenges. Some sectors, such as software, IT, and healthcare equipment, have flourished, aided by a shift towards managed solutions. Managed solutions, offering cost-per-use models, are gaining traction and are projected to account for 22% of total equipment leasing volumes in the coming years. For lessees looking to acquire assets, the current competitive market offers an opportune time for equipment leasing.

Challenges Ahead: Stagnation and Economic Uncertainty
Despite its overall strength, the equipment finance industry is currently facing challenges. In the ELFA’s July Monthly Leasing and Finance Index, new business volume declined across various metrics. The agriculture and energy sectors, in particular, have been struggling, impacting the industry’s growth trajectory.

Political and Regulatory Impact
Political uncertainty is a significant concern for equipment finance executives, with potential implications for industry regulations and tax reforms. The upcoming elections hold the key to determining the future course of regulatory oversight and legislation. Bank-owned firms, in particular, may face new capital requirements and ratios, leading to potential changes in financial products and market sectors.

ELFA’s Proactive Approach
The ELFA proactively engages with lawmakers and policymakers to shape the political landscape. Through initiatives like Capitol Connections and in-district meetings with members of Congress, the association advocates for the industry’s interests and educates decision-makers about the equipment finance sector.

Cultivating Young Talent and Lease Accounting
To ensure the industry’s sustained growth, the ELFA focuses on attracting young talent through the Emerging Talent Advisory Council (ETAC) and guest lecture programs. Additionally, the association is actively involved in transitioning to a new lease accounting strategy, providing educational resources to members and their customers about the upcoming changes.

A Wait-and-See Stance
Uncertainty in the marketplace, influenced by various factors such as currency fluctuations, geopolitical events, and energy markets, prompts businesses to adopt a cautious approach in making expansion and investment decisions. As a result, the equipment finance industry may experience a period of indecision until the economic landscape stabilizes.

The equipment finance industry has demonstrated its adaptability and resilience over the years, overcoming various challenges and evolving with the times. Despite potential headwinds and uncertainties, the ELFA remains optimistic about the industry’s future, confident in its ability to create value for the U.S. economy and the businesses it serves. Through proactive engagement, talent cultivation, and readiness to navigate turbulent waters, the equipment finance industry is poised to embrace a promising future.

In the fast-paced world of equipment finance, success hinges on efficient decision-making and accurate evaluation of business performance. Just as vital signs are monitored in hospitals to assess a patient’s health, well-defined financial metrics play a crucial role in measuring the health of equipment leasing companies. By leveraging these metrics, leaders can gain invaluable insights into their business’s performance and identify potential challenges before they escalate. In this blog post, we’ll explore the importance of financial metrics, the various data points to consider, and how automation can enhance the effectiveness of these metrics.

Going Beyond Financial Statements

While corporate financial statements provide a high-level overview of a leasing company’s performance, they fall short in revealing the underlying dynamics and potential issues. Managers need more comprehensive data to gauge their business’s health accurately. This is where financial metrics come into play. These metrics are statistical measurements that offer insights into the overall well-being of a company based on various data points.

Critical Financial Metrics

1. Year-to-Date Deals Comparison: Tracking the number of deals completed year-to-date compared to the previous year can highlight sales trends. Automating this process provides real-time alerts when sales performance deviates from expectations, allowing managers to take prompt action.
2. Comparative Internal Rates of Return: Comparing internal rates of return year-over-year helps gauge the company’s profitability and investment performance. A positive trend indicates a healthy and growing business.
3. Interest Rate Spread: Monitoring the interest rate spread helps identify the profitability of financing deals. It can assist in making strategic decisions related to pricing and risk management.
4. Portfolio Statistics: Analyzing the leasing portfolio’s composition, including the types of equipment and industries it serves, ensures a balanced and diversified risk profile.
5. Collection Metrics and Residual Realization: Examining the effectiveness of collection efforts and the realization of residual values offers insights into the company’s asset management capabilities.
6. Employee Activity Metrics: Identifying the most effective salespeople and understanding the factors contributing to their success can help optimize the sales process.
7. Vendor Metrics: Evaluating vendor performance and identifying which vendors refer clients with high default rates allows businesses to focus on profitable partnerships.

Harnessing the Power of Data

In today’s technologically advanced environment, data is readily available in every aspect of equipment leasing operations. Key information, such as deal amounts, interest rates, vendors, and lease terms, is captured in company databases. Additionally, portfolio tracking software, desktop monitoring systems, and third-party data suppliers contribute valuable insights. Automated systems, powered by skilled database programmers, can collect and aggregate this data, presenting it in user-friendly dashboards.

Benefits of Automation

1. Real-Time Insights: Automated systems provide up-to-date metrics, enabling managers to make informed decisions without delays.
2. Accurate and Reliable Data: Automated data collection minimizes the risk of human error, ensuring the accuracy and reliability of the metrics.
3. Actionable Intelligence: With easy access to detailed information, managers can quickly identify issues and address them before they escalate.
4. Optimal Portfolio Management: Tracking industry and equipment type helps businesses maintain a balanced portfolio and mitigate risks.
5. Identifying Missed Opportunities: Analyzing a wide range of metrics uncovers valuable insights, revealing untapped potential and new growth avenues.

Leveraging Financial Metrics for Success

A well-run equipment leasing business should regularly analyze a vast array of metrics to drive success. Beyond financial metrics, other vital areas to monitor include employee performance, vendor partnerships, and portfolio diversification. By embracing data-driven decision-making and leveraging automated systems, leasing companies can position themselves for sustained growth and profitability.

In the ever-evolving landscape of equipment finance, success depends on understanding the health of your business at all times. Financial metrics serve as powerful tools to assess performance, identify challenges, and seize opportunities. By harnessing the wealth of data available and embracing automation, leasing companies can stay ahead of the competition, ensuring a prosperous future. So, just as hospital staff relies on vital signs to monitor patient health, equip yourself with the right financial metrics to ensure the well-being of your equipment finance company.