Industry Snapshot

Members weigh in on the health of the equipment finance market

UNCERTAINTY is typically the enemy of the equipment leasing and finance industry. When companies have a murky view of important issues on the horizon, they typically retreat into “wait and see” mode in purchasing, which can spell bad news for ELFA members.

But questions surrounding the implementation and impact of sweeping tax reform, a volatile stock market, a rising interest rate environment and other issues have done little to dim the optimism of members or their clients. The ELFA Beige Book, a quarterly survey of four of the organization’s Business Council Steering Committees (BCSCs)—captive and vendor finance firms, financial institutions, independent middle market companies and small ticket firms—finds most unfazed by lingering questions and highly optimistic about the future.

“Last year was excellent in terms of business performance, and 2018 is off to a good start. Many members of our steering committee are optimistic about how 2018 will turn out from a results perspective,” says Andrew Blacklock, Senior Director, Strategy and Business Operations at Cisco Systems Capital in San Jose, California, and Chair of the Captive and Vendor Finance BCSC.

“The recent clarity provided around the tax environment could potentially lead to large equipment purchases and related financings once companies fully digest and understand the implications.”

—Andrew Blacklock, Cisco Systems Capital


Blacklock and three of his fellow BCSC chairs reviewed the latest Beige Book data from the final quarter of 2017 and shared their views on the state of the equipment finance industry. Their insights reveal some important considerations in the sector for the coming year.

New Business and Existing Portfolios Are Strong

Overall, new business is strong. Each of the chairs said their businesses and their sectors overall were performing well, with strong deal flow, high levels of transactions being submitted through the credit process and no capital constraints.

“There is an enormous amount of capital in the market—more than I’ve ever seen in my entire career,” says David Normandin, Chair of the Small Ticket BCSC and Managing Director of the Commercial Finance Group at Hanmi Bank in Irvine, California, who has worked in the industry for more than 20 years. “At my bank, it’s not a question of whether or not we’ve got a concern about allocation of capital. It’s more a question of how much more can we do? And so that’s a unique situation.”

“There is an enormous amount of capital in the market—more than I’ve ever seen in my entire career.”

—David Normandin, Hanmi Bank


Normandin’s group also saw a return to seasonal cycles for the first time in several years. The return of a “slow summer” marked a change from previous years, followed by a very busy fourth quarter, he says. The first quarter of 2018 continued to be strong. He doesn’t read much into the cycle other than to call it “interesting.”

Amid Optimism, Some Challenges Remain

Even in this positive environment, sectors are facing some challenges. One of the foremost is competition, says Brian Eschmann, Chair of the Independent Middle Market BCSC and President of Trans Lease, Inc. in Denver, Colorado. While his segment has seen a steady rise in overall opportunities, they face competition both from within their sector and from other sectors—more so than other BCSCs.

At the same time, competitors seem to be driving significant pricing pressure and narrower margins in their reluctance to fully pass along their higher capital costs. That means that spreads are tight. “In time, we’ll see the market start to accept the upward movement in rates,” he says.


Members of the small ticket sector saw an uptick in delinquencies in the second quarter, which is consistent with a slow but steady rise in charge-offs and delinquencies shown in previous Beige Book data across all sectors. At first, Normandin says his fellow small ticket sector members began to worry, but when delinquencies came back in line during the third and fourth quarters, it appeared to be an anomaly. Each of the chairs said that, while they’re watching portfolio quality and the rise in delinquencies, those levels are still near historic lows, so it’s not yet a concern.

“We’re in the fourth year of low commodity prices in the cash grain sector. We have seen some increase in delinquencies but it has stabilized over the last year,” says Michael Romanowski, Chair of the Financial Institutions BCSC and President of the Farm Credit Leasing Services Corporation in Minneapolis, Minnesota.

Key Markets Vary Between Sectors

Perhaps nowhere is the difference between the industry sectors—and member companies—more clear than in evaluating the differences between which markets offer the most opportunity. Some of the “usual suspects” topped the list for best-performing markets, such as construction, health services and industrial/manufacturing.

“Drawing others to the industry, educating them and investing in them is going to be key to the future success of the broader industry, as well as each of our individual companies.”

—Brian Eschmann, Trans Lease, Inc.


But those aren’t the sweet spots for everyone. For example, while agriculture was named as a laggard in the aggregate data from all four sectors, it’s Farm Credit Leasing Services Corporation’s bread and butter. And they’re doing just fine, Romanowski says. Working primarily in agriculture and energy, he’s had to shift to various areas of focus—moving from doing a great deal of business in the cash grain sector a few years ago to solar installations at nut harvesters and wineries, for example—but finding these niches has led to well-paced growth and customers moving from replacement to expansion mode.

“As a lender in the transportation space, I thought it was interesting to see truck financing appearing as both a best- and worst-performing segment,” Eschmann says. “I think it illustrates the broad array of business models in our segment, how different companies can have a different experience in the same segments.”

A Bright Future with Some Speed Bumps

When the chairs look into their crystal balls to attempt to predict how the rest of the year will go, they like what they see overall, but there are some caveats.

Among the variables that seem positive, but members aren’t sure yet, is the sweeping new tax law that went into effect at the beginning of 2018. While the lower corporate tax and 100% bonus depreciation seem to spell good news for customers, the BCSC chairs said that it’s still not clear how much of an impact the law will have on investment.

“Our committee members are reviewing the recent Tax Cut and Jobs Act to understand the impact on customers and their own businesses,” Blacklock says. “In the past few years, many companies have held off on large capital purchases because of uncertainty around the business environment and taxes. The recent clarity provided around the tax environment could potentially lead to large equipment purchases and related financings once companies fully digest and understand the implications.”

Eschmann says he thinks the law will drive new capital expenditure spending, but that will likely happen after companies realize some of that savings. Once they see it on their financial statements, they may be more likely to invest, he says. And while some companies are seeing customers ask about the new lease accounting standards, it’s not a major issue for most of them, the BCSC chairs agree.

“We’re in the fourth year of low commodity prices in the cash grain sector. We have seen some increase in delinquencies but it has stabilized overthe last year.”

—Michael Romanowski, Farm Credit Leasing Services Corporation


Member companies are in growth mode, which is more good news. But they’re challenged in finding talented workers, Eschmann says. “I think drawing others to the industry, educating them and investing in them is going to be key to the future success of the broader industry, as well as each of our individual companies,” he says.

Big-picture issues like rising interest rates and immigration issues affect members in different ways, as well. Everything from weather to the search for workers affects Romanowski’s business lines, while the small ticket sector needs technology investment to remain competitive. “We’re really technology companies that lend money,” Normandin says.

All of these varied issues point to an industry that is bound together by similar products, but that is deeply individual and has varying concerns. The good news is that the rising tide seems to be lifting the majority of individual ships, regardless of how different they are.

Data Outlook

Find out what recent industry data reveals about the state of the equipment finance sector in ELFA President and CEO Ralph Petta’s second-quarter video message above.