Equipment financiers are more optimistic than they’ve been in over two years, with companies champing at the bit to capitalize on expected reduced interest rates.
The Equipment Leasing and Finance Foundation’s Monthly Confidence Index rose to 58.4 in August, its highest mark since February 2022, according to its monthly report released Aug. 21. That’s up from 50.7 in July and 50.4 in August 2023.
“Our overall confidence in the near-term future of the industry is high,” Jeff Elliott, president of Huntington Equipment Finance, said in the report. “We’re expecting economic conditions for businesses to improve over the next six months as interest rates decline and investment in U.S. manufacturing continues to grow, which in turn will lead to rising demand for funding to complete capex projects.”
The ELFF’s indices are based on surveyed responses and data from a wide range of industry executives, including large, medium and small lending institutions. Of the respondents, 58.3% were banks, 33.3% were independent and 8.3% were captives.
Pent-up demand
Among surveyed executives in August, 37.5% anticipate improved business conditions over the next four months. Just 3.9% of respondents shared that sentiment in July.
Nearly 42% of respondents expect demand for loans and leases for capital expenditures to increase over the next four months, up from 11.7% last month. Nearly 21% expect greater access to capital for funding equipment acquisitions, an increase from 19.2% in July.
For the next six months, 33.3% of respondents anticipate that their companies will increase spending on business development activities, up from 19.2% in July.
The improved outlook in equipment finance coincides with consecutive months of easing inflation, raising the likelihood that the Federal Reserve will lower interest rates next month. Lower rates bode well for an industry that’s felt the strain of tight lending standards for the better part of two years.
“I believe there is pent-up demand in several sectors that are waiting for this interest rate reduction to happen,” Donna Yanuzzi, executive vice president of Peoples Security Bank and Trust Company’s Equipment Finance Division, said in the report. “Interest rates typically impact transactional business, and equipment finance is one of those industries.”
James D. Jenks, chief executive at Global Finance and Leasing Services, said the industry’s worst days are in the rearview and expects gradual improvement throughout the remainder of 2024.
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