At the opening General Session at the ELFA Best Practices Roundtables in Chicago last month, PayNet Senior Executives Bill Phelan and Tom Ware discussed the latest industry lending data prepared from PayNet’s proprietary database. Following are highlights from their presentation:

Across the equipment leasing and finance industry, average transaction terms are the longest on record and approval rates have increased from the recessionary low of 60% in April 2009 to 77% in January 2014. Driven in part by increasing approval rates, the Thomson Reuters/PayNet Small Business Lending Index demonstrated a 16-20% year-over-year growth rate in national originations immediately after the recession, but also shows a slower growth rate of 5-7% in recent months. Originations growth following the recession has been significant with independent and captive finance companies in particular, institutions that were impacted more dramatically by the downturn than bank owned lenders.

Historic low delinquency and default rates also have contributed to increased volume as risk across all industry segments has decreased. The construction and transportation segments that experienced some of the highest delinquency rates during the recession grew by 18% and 13%, respectively, in 2013. Default and delinquency rates in both segments have come more in line with other industries, creating a more favorable environment within these areas.

At a geographic level, the East and particularly the South still trail areas in the Midwest and West in terms of current delinquency, as well as projected future defaults. The Atlanta and Dallas Federal Reserve District areas had the highest default rates, 1.5% and 1.4%, respectively, in 2013, and are the only regions with projected default rates in 2014 and 2015 over 2%. Furthermore, in these somewhat riskier regions, growth over the last five years has trailed the growth in other regions, especially the Midwest.

Phelan and Ware conveyed the overall message that portfolios have improved and that we are in a period of steady growth. However, the length of this period of growth is now in line with the historical average length of past growth cycles. With small business loan balances still well below 2008 levels per the FDIC and SBA, there still appears to be uncertainty in the marketplace, and the question remains if we have reached the peak in terms of growth and portfolio strength, or if the steady growth driven by lower risk lending will continue over the next few years.

 By Thomas E. Ware, Senior Vice President - Analytics & Product Development at PayNet, Inc.

Photo: PayNet Senior Executives Bill Phelan (left) and Tom Ware address the General Session.

 For more PayNet data, visit the Risk Management Resources page on the ELFA website.