Over the last decade, the equipment finance industry and the U.S. economy have been operating in a low-interest rate and low-inflation setting. Although this business environment has contributed to increased competition within the industry, it has also provided a relatively stable climate for investment in equipment and software. Equipment finance firms have become accustomed to this low-rate environment, and many may need to prepare for the possibility of a more rapid rise in inflation and interest rates in the near future.
A new report from the Equipment Leasing & Finance Foundation, On the Rise: How Inflationary Pressures and Rising Interest Rates Could Impact the Equipment Finance Industry, explains how a world of rising inflation and interest rates may affect the equipment finance industry, including customer demand, portfolio performance, spreads and the propensity to finance. In doing so, it considers historical evidence for how equipment lessors and the overall credit market have responded during periods of rising inflation and interest rates that have occurred in previous business cycles.
Understanding the key drivers of inflation and interest rates and how they affect the economy will help industry professionals identify and adapt to the inflation and interest rate environment in which they find themselves.
A new report from the Equipment Leasing & Finance Foundation, On the Rise: How Inflationary Pressures and Rising Interest Rates Could Impact the Equipment Finance Industry, explains how a world of rising inflation and interest rates may affect the equipment finance industry, including customer demand, portfolio performance, spreads and the propensity to finance. In doing so, it considers historical evidence for how equipment lessors and the overall credit market have responded during periods of rising inflation and interest rates that have occurred in previous business cycles.
Understanding the key drivers of inflation and interest rates and how they affect the economy will help industry professionals identify and adapt to the inflation and interest rate environment in which they find themselves.
Key Themes
Key findings from the Foundation report include:
- Following nearly a decade of modest economic expansion, low interest rates and low inflation, equipment finance professionals will have to adjust to a shifting reality of higher interest rates and building inflationary pressures.
- Although an environment of strong growth might lead to faster growth in new business volume, that growth is likely to be accompanied by higher inflation and faster interest rate increases. As a result, spreads could narrow and portfolio performance could suffer.
- Alternatively, a status quo environment will require less adjustment to a company’s operations but will likely be accompanied by slower growth.
- Whichever path the U.S. economy heads down, there will be implications for the industry’s bottom line and individual firms should consider adjusting their business strategies and tactics depending on which scenario comes to pass.
Don’t miss the session “Inflationary Pressures and Rising Interest Rates: Forecasting the Future Possibilities” at the
2018 ELFA Annual Convention. Learn more at www.elfaonline.org/events/2018/AC/.
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RISK MANAGEMENT
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2018