Consumer tech demands, swap rates weigh on equipment lenders

Swap-rate volatility and growing customer demand for tech-driven machines are among challenges that equipment lenders are preparing for heading into 2026. 

Equipment and software investment is projected to rise 6.2% year over year in 2026, according to a Dec. 17 report by the Equipment Leasing and Finance Foundation. Lenders are hopeful that recent Federal Reserve interest-rate cuts and AI-driven investments will help the industry build momentum despite ongoing economic and regulatory uncertainty, according to the report. 

Technology poses both financing opportunities and challenges, James Schulte, head of equipment finance market coverage originations at Wells Fargo, told Equipment Finance News.  More end-users, he said, are discovering: 

• New equipment innovations, 
• Fleet management software; and 
• Related AI tools.  

These tools require creative financing solutions and services. 

“Our customers are evaluating ways to utilize technology to increase productivity and efficiencies, and that is a really humongous opportunity for us,” Schulte said. “But it’s also a threat because if people are doing it better than us, or in ways that we’re not, that is a concern.” 

Lenders that effectively assess and manage risks associated with new technologies “are the ones who are going to succeed long term,” he said. 

“Collateral is changing as technology becomes such a bigger part of equipment,” he said. “Understanding this increase in stock costs and overall transaction prices due to new and evolving technologies, it’s not only going to influence overall customer buying behavior in terms of frequency, quantity, etc., it’s going to potentially alter trade cycles.” 

Managing risk and pairing the right credits with the right customer will be “a key differentiator in the success of equipment finance companies going forward.”

— James Schulte, Wells Fargo

Swap-rate challenges 

Equipment lenders are also grappling with swap-rate volatility, “especially when compared to cost-of-fund structures,” David Normandin, president of Wintrust Specialty Finance, told EFN.  

An interest-rate swap is a financial derivative in which two financial institutions agree to exchange payment streams, with floating rates for fixed interest being the most common. Lenders may use swaps to hedge interest rates, reduce borrowing costs or align debt payments with their risk appetite.  

“One of the things that many companies really focus on is managing cost of funds more predictably,” Normandin said. “And then, how do you do that in a way that you can sell that net-interest margin to your obligors, to your customers? Because that compression of net-interest margin has been a challenge, specifically for banks, but also independents.” 

The spread between the 10-year U.S. Treasury yield and the 10-year Secured Overnight Financing Rate swap rate was 45 basis points as of Dec. 19, according to financial risk management firm Chatham Financial. For comparison, the average 10-year swap spread was 18 basis points at the end of 2024, according to the Federal Reserve Bank of St. Louis.   

Normandin said he’s hopeful that swap-rate volatility will ease in 2026. 

“I thought we’d probably see a little more of that earlier this year, but it didn’t happen, and that may happen next year,” he said.  

Check out our exclusive industry data here.