Data Goldmine: 7 Trends from ELFA’s Largest Survey

There’s a wealth of data in the 2023 Survey of Equipment Finance Activity. Uncover hidden gems and extract the essential findings that matter to your business. 

Are you curious about what trends are driving the equipment finance industry? Look no further than the 2023 Survey of Equipment Finance Activity (SEFA), the most comprehensive source of industry data and intelligence.   

New from the ELFA Knowledge Hub, the 2023 SEFA reveals key statistical, financial and operations information for the $1 trillion equipment finance industry in 2022, based on a comprehensive survey of more than 100 equipment finance companies conducted earlier this year.  

Start by reading the seven snapshot findings outlined below. But don’t stop here! Use the tips provided to drill down into the wealth of data in the 2023 SEFA to find even more business intelligence to help your company succeed. 

Trend #1. 

Renewable energy is heating up. 

As opportunities continue to grow in the rapidly developing climate financing market, new business volume for renewable energy equipment (including wind and solar) rose rapidly from 2021 to 2022, according to the 2023 SEFA. Respondents reported a 51.6% jump—from $1.034 billion to $1.568 billion—year-over-year.  
This significant increase comes in the wake of increased environmental emphasis by governmental and commercial entities. Measures like the Inflation Reduction Act, which was signed into law in 2022, provide for significant investment in climate and clean energy. According to the Equipment Leasing & Finance Foundation study “The ESG Imperative: Understanding the Opportunities for the Equipment Leasing and Finance Industry,” as of July 2021, global ESG assets under management were $35 trillion with the U.S. representing almost half of this amount at $17 trillion.  

Learn more about climate finance on the ELFA Knowledge Hub’s ESG webpage at www.elfaonline.org/ESG and don’t miss the session “Sustainable Innovation: Driving Climate Finance in Today’s Market,” supported by the ELFA Climate Financing Committee at the upcoming ELFA Annual Convention.  

Trend #2. 

Cost of funds is at the highest level in years.

Another major takeaway from the 2023 SEFA is the rise in cost of funds as a result of Federal Reserve interest rate hikes. Cost of funds jumped 211 basis points (bps) between 2021 and 2022. A 184-bps overall increase in pre-tax yields did not offset this sharp rise. The result was a 26-bps overall decline in pre-tax spreads. Managing this cost of funds increase will be a major emphasis as equipment finance companies make their way through the current higher-interest-rate climate.  

What contributed to this spread compression? One factor is that bank lessors built up their balance sheets while offering very favorable rates to strong credits in 2022. Commenting on this trend, Stan Walker, Managing Director, Citizens Asset Finance, a division of Citizens Bank, N.A., said, “With continued rising funding costs, exacerbated by the regional banking issues in spring of 2023, I believe you will see this trend reverse in 2023 and 2024 as more and more lenders are passing these costs on through higher spreads to their clients.”  

The survey respondents reported using a number of customer-facing tactics to manage the cost of funds increase. The two most popular tactics are tying pricing to an index (70%) and updating rate cards more frequently (53%). For captives specifically, updating rate cards more frequently is the top choice (69%). Captives also are more likely to lock in rates with no fee (39%), a tactic only chosen by 26% of banks and 4% of independents. 

Trend #3. 

Hybrid work models show no signs of abating.

Pre-COVID, 84% of the SEFA respondents’ workforces worked in the office full-time. According to the 2023 SEFA, hybrid arrangements combining work-from-home and work-from-office now dominate. Some 90% of SEFA respondents said they spend some of their time working remotely, and 36% reported spending fewer than five days a month working in a company office location. 

“We have generally migrated to a hybrid work location approach,” said one respondent. “Customer-facing employees are encouraged to work their region remotely and spend time with clients,” said another. “Non-customer facing employees primarily work in a hybrid model.”  

Trend #4. 

 Use of electronic documents continues to accelerate. 

Another post-pandemic impact is seen in the growing adoption of electronic documents. In 2018, 50% of SEFA respondents reported that at least some of their new business volume was documented via an e-doc. Fast-forward to 2022, and adoption has risen to 88%.  
For those who use electronic documents, the top storage methods are storage electronically in an e-vault (57.6%) and storage in a combination of electronic and paper copies (23.7%). 

The rise in electronic document adoption coincided with ELFA’s multi-year initiative to expand the use of e-docs and e-chattel paper in equipment finance. In recent years, the association has promoted adoption of these technologies via a variety of educational offerings and an ELFA Board of Directors Task Force on e-Leasing, and the Equipment Leasing & Finance Foundation has released a number of articles and studies on the topic. Learn more on the ELFA Knowledge Hub’s Electronic Documents webpage at 
www.elfaonline.org/edocs.    

 

Trend #5. 

Transportation equipment is most-financed—but not fastest-growing. 

In 2022 transportation equipment held the top spot as the most-financed equipment type for the second year in a row, representing a quarter of total new business volume (24.7%, up from 21.3% in 2021).  

Rounding out the top five most-financed equipment types were agriculture, construction, IT & related technology services, and industrial/manufacturing.  

A closer look at the 2023 SEFA data reveals several stand-out equipment types, notable for their rapid growth: The equipment types that saw the largest increase in new business volume by percentage were other energy (which refers to energy efficient lighting and batteries), commercial aircraft and telecommunications. The equipment types with the biggest increase in new business volume by dollar amount were trucks & trailers, materials handling and agricultural.   

Trend #6.

Term loans represent the biggest share of financing products.

Term loans represent not only the financial product with the greatest share of new business volume, but also the only product whose share increased year-over-year. From 2021 to 2022, term loans rose from 28.5% to 37.9%, while other financial products declined, including direct finance leases, operating leases, non-tax-oriented leases, off-balance-sheet loans and tax-exempt leases & loans.  

“2022 saw the emergence of a number of new bank leasing groups and many of them were starting out as ‘loan only’ shops,” observes Stan Walker of Citizens Asset Finance, noting this may have contributed to the increase in term loans.

Trend #7. 

Employee productivity is up.

Employees are working more efficiently, according to productivity ratios in the 2023 SEFA. The data show increases in a number of categories. For example, new business volume per full-time equivalent (FTE) dipped in 2021 but rose in 2022. Likewise, new business volume per Sales FTE declined in 2021, and increased in 2022.  

The latter trend may be due to an increased focus on IT projects that better support the sales process in terms of pricing, onboarding and integrating platforms like Salesforce, notes Carol Ann Fisher of PricewaterhouseCoopers LLP, which administers the SEFA for ELFA. “My intuition says that automation is bringing about benefits to the sales process, resulting in more sales per person.”  

Access the Data  

ELFA members can tap into three sources of SEFA data at www.elfaonline.org/SEFA:

• Full SEFA Report – A 300+ page PDF document that offers comprehensive performance metrics for 100+ equipment finance companies. The companion Small-Ticket SEFA Report delves into small-ticket portfolios.  
• Interactive SEFA Dashboard – A powerful online dashboard that showcases executive summary data back to 2006. Drill down into the data you care about—in just a few clicks. Free and available to all ELFA members.
• MySEFA Dashboard – A personalized tool that lets you track your operational and performance statistics and compare them against your peers. Only available to companies that participate in the SEFA. 

Make Your Voice Heard : Participate in the Survey

Speaking of productivity, make sure your company participates in the SEFA survey each year! Participation is a benefit of ELFA membership, and member respondents receive special benefits that make it well worth your while, including: 

• A complimentary copy of the SEFA and Small-Ticket SEFA reports (a $1,495 value) 
• A personalized MySEFA interactive tool, which lets you track your company’s operational and performance statistics and compare them against your peers. 

“As a comprehensive source of industry data, the SEFA is made possible by ELFA member companies who respond to the survey, and we thank them for their participation,” says Bill Choi, ELFA VP of Research & Industry Services. “I encourage all members to complete the SEFA survey.”

If you have any questions about participating in the survey, to schedule a demo on using the Interactive SEFA Dashboard or to discuss any other aspects of the SEFA, please contact Bill Choi at [email protected].