The darkest days may be over in the equipment finance sector with interest rates likely to come down next month, but lenders caution that the road to recovery will be slow.
New business volume in the industry totaled $11.1 billion in July, up 13% year over year and up 11% month over month, according to a monthly report from the Equipment Leasing and Finance Association released Aug. 23.
Lenders’ confidence rose to its highest mark in over two years this month as companies eagerly await the Federal Reserve’s expected interest rate cut next month, according to a separate report.
While recent data hints that the industry is on the upswing, some equipment finance segments remain stagnant. In the agriculture sector, for instance, low commodity pricing and weather extremes remain a challenge, Jay Darden, regional sales manager at Clinton, N.C.-based Farm Credit Express, told Equipment Finance News.
“If you look at the Purdue Capital Investment Index, their indexes remain at near-record lows,” Darden said. “And the East Coast took a glancing blow of Hurricane Debby, so a lot of crops are in poor condition.”
The Center for Commercial Agriculture at Purdue University recently reported a 7-point YoY drop in its July Farm Capital Investment Index. Farm financial performance fell 6 points YoY and 4 points MoM. Despite those declines, farmer sentiment improved in July, according to the report.
While a quarter-point drop in interest rates next month would have a marginal impact at best, continued rate drops in 2025 could spur more noticeable growth in the agriculture sector, Darden said.
“It would turn some tire kickers into buyers, for sure,” he said.
Trucking sees brighter future
Among equipment finance sectors, the trucking industry may have the most reason for optimism, evidenced by a 32% YoY jump in Class 8 retail sales in July. The number of new Class 8 registrations is projected to rise 5.2% to 218,300 in 2024 from 207,500 in 2023, according to the Equipment Leasing and Finance Foundation.
The trucking industry is benefiting from better owner-operators after the market became oversaturated during the e-commerce boom post-pandemic, Chris Grivas, president of Chadds Ford, Pa.-based CAG Truck Capital, told EFN.
“The owner-operators that should not have been in this business are pretty much gone,” Grivas said. “Even the ones that were meant to be in this business that had to get out because of freight rates and are now slowly coming back in.”
Borrowers with “scarred credit” are one of the lingering challenges stemming from the yearslong trucking recession, he said.
The ELFA also reported a 75.8% credit approval rating in July, up 80 basis points from June. Receivables over 30 days stood at 2.5%, up 50 basis points MoM and 20 basis points YoY. The total headcount for equipment finance companies increased 3% YoY, according to the report.
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