Equipment Financing Sees the Largest Increase in 2 Years

Financing for companies’ equipment purchases increased 16.7% last month compared with July 2009, the largest uptick in two years, according to ELFA’s monthly survey. Respondents said they financed $5.6 billion in equipment, compared with $4.8 billion in July 2009. Other metrics from the survey bode well for the industry: 3.45% of borrowers were delinquent 30 days or more on their credit, compared with 3.9% last year, while lenders considered 1.5% of receivables as unlikely to be recovered, compared with 1.67% last year. “Financing demand appears to be picking up,” said ELFA President William Sutton. “It appears we’re heading in the right direction, and our members remain cautiously optimistic that this trend will continue.”

Press Release from ELFA:

The Equipment Leasing and Finance Association’s (ELFA) Monthly Leasing and Finance Index (MLFI-25), which reports economic activity for the $518 billion equipment finance sector, showed overall new business volume for July increased 17 percent when compared to the same period in 2009. When compared to the prior month, the MLFI-25 reported new business volume increased slightly, from $5.5 billion to $5.6 billion. After 20 consecutive months of declines, business volume continues to show positive year-over-year growth in each of the last four months. The July increase in originations was the strongest in two years.

Credit quality is mixed. Receivables over 30 days increased marginally to 3.5 percent, up from 3.3 percent in the prior month, but improved when compared to the year-earlier period (3.9%). Charge-offs fell to 1.5 percent when compared to the previous month (1.8%) and the same period in the previous year (1.7%).

The number of credit approvals stabilized at 70 percent in July compared to the previous month, and improved compared to the same period the prior year (66%). Thirty-six percent of participating organizations reported submitting more transactions for approval during the month. Finally, total headcount for equipment finance companies remained relatively flat during the June-July period. Supplemental data shows that small business and construction lead the underperforming sectors.

“Financing demand appears to be picking up,” notes ELFA president William G. Sutton. “Our data mirrors recently reported government statistics showing the annual rate of overall business investment in equipment and software up nearly 22 percent in the second quarter. It appears we’re heading in the right direction and our members remain cautiously optimistic that this trend will continue.”

To underscore this point, a related survey, the Equipment Leasing & Finance Foundation’s Monthly Confidence Index (MCI-EFI), for August was at 58.2, an increase from the July 2010 index of 57.6.

There have been some positive signs in the industry,” said Crit DeMent, Chairman, CEO, LEAF Financial Corporation. “In addition to the recent encouraging trends in origination growth and portfolio performance, the asset back securitization market seems to be strengthening for equipment leasing. Several lessors have completed transactions in 2010, and investors have been very receptive to our asset class because of its relatively good performance. The latter half of the year promises to be even stronger as issuers and rating agencies become more comfortable operating under some of the new government regulations. The return of this critical source of capital is a vital component to the long-term success of many in our industry, especially among independents and captives.”

About the ELFA’s MLFI-25

The MLFI-25 is the only index that reflects capex, or the volume of commercial equipment financed in the U.S. The MLFI-25 is released globally at 9 a.m. Eastern time from Washington, D.C., each month, on the day before the U.S. Department of Commerce releases the durable goods report. The MLFI-25 is a financial indicator that complements the durable goods report and other economic indexes, including the Institute for Supply Management Index, which reports economic activity in the manufacturing sector. Together with the MLFI-25 these reports provide a complete view of the status of productive assets in the U.S. economy: equipment produced, acquired and financed.

The latest Monthly Leasing and Finance Index, including methodology and participants is available below and also at http://www.elfaonline.org/ind/research/MLFI/

MLFI-25 Methodology

The ELFA produces the MLFI-25 survey to help member organizations achieve competitive advantage by providing them with leading-edge research and benchmarking information to support strategic business decision making. The MLFI-25 is a barometer of the trends in U.S. capital equipment investment. Five components are included in the survey: new business volume (originations), aging of receivables, charge-offs, credit approval ratios, (approved vs. submitted) and headcount for the equipment finance business. The MLFI-25 measures monthly commercial equipment lease and loan activity as reported by participating ELFA member equipment finance companies representing a cross section of the equipment finance sector, including small ticket, middle-market, large ticket, bank, captive and independent leasing and finance companies. Based on hard survey data, the responses mirror the economic activity of the broader equipment finance sector and current business conditions nationally.

ELFA MLFI-25 Participants ADP Credit Corporation

Bancorp South Equipment Finance

Bank of America Bank of the West

Canon Financial Services Caterpillar Financial Services Corporation

CIT

De Lage Landen Financial Services

Dell Financial Services

EverBank Commercial Finance

Fifth Third Bank

First American Equipment Finance

GreatAmerica Hitachi Credit America HP Financial Services

John Deere Credit Corporation

Key Equipment Finance

M&I Equipment Finance

Marlin Leasing Corporation

National City Commercial Corp.

RBS Asset Finance

Regions Equipment Finance

Siemens Financial Services

Stearns Bank

Susquehanna Commercial Finance, Inc.

US Bancorp

Verizon Capital Corp

Volvo Financial Services

Wells Fargo Equipment Finance

About the ELFA

The Equipment Leasing and Finance Association (ELFA) is the trade association that represents companies in the $518 billion equipment finance sector, which includes financial services companies and manufacturers engaged in financing capital goods. ELFA members are the driving force behind the growth in the commercial equipment finance market and contribute to capital formation in the U.S. and abroad. Its over 600 members include independent and captive leasing and finance companies, banks, financial services corporations, broker/packagers and investment banks, as well as manufacturers and service providers. For more information, please visit www.elfaonline.org. Follow ELFA on Twitter @ELFAonline.

ELFA is the premier source for statistics and analyses concerning the equipment finance sector. Please visit http://www.elfaonline.org/ind/research/ for additional information.

The Equipment Leasing & Finance Foundation is the non-profit affiliate to the Equipment Leasing and Finance Association, providing future-focused research to the equipment finance industry. For more information please visit the website at www.leasefoundation.org

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