Independent lenders have emerged as major players in the equipment finance industry as banks grapple with tighter regulatory standards and declining capital.
Forty percent of independent equipment financiers have approved 81% or more of loan applications this year, up from 30% in 2021, according to a September report by the Equipment Leasing and Finance Foundation.
Meanwhile, 28% of banks have approved at least 81% of equipment finance loans this year, down from 34% in 2021.
More banks are steering clear of small businesses and small-ticket items due to stringent regulations and an overall decline in deposits, Huntington Equipment Finance President Jeff Elliott said this week during the Equipment Leasing and Finance Association convention in Austin, Texas.
Referring to Section 1071 of the Dodd-Frank Act, which requires financial institutions to collect and report data from applications by small businesses to the Consumer Financial Protection Bureau, Elliott said banks may not “totally abandon the small business, but they’re definitely afraid of things like 1071.”
“And for a $50,000 deal, it’s hard to make money no matter what rate you charge. … So, I see us going upmarket, focused more on customers that have larger deposits and are just more impactful.”
Independents cater to ‘little guys’
Independents are also capitalizing on banks’ conservative lending practices, which primarily target large companies and large deals, Robert Neagle, former president and chief executive of Rochelle Park, N.J.-based Finova Capital, said during the event.
“That’s a great opportunity for independents,” he said. “Let [the banks] abandon that small business market.”
Independent lenders are investing in technologies such as embedded lending and online application platforms to accommodate small businesses and startups, Neagle said. These technologies expedite the lending process, catering to smaller companies that often need to obtain capital quickly.
“It’s going to be easier, I think, for an independent to be faster to innovate in that area, and measure what they’re trying to do based on the experience that the customer’s after, not just the price of the transaction,” Neagle said.
While banks are investing heavily in tech-driven solutions, deploying them can be a lengthy and painstaking process, Elliott said.
“Not getting that technology spend hurts us against a lot of the independents that have spent the money to get to that quick turn, to the quick buys, to the other types of products that enable you to speed up the process,” he said. “And that damages our value proposition in the marketplace.”
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