What are top areas of interest and concern among independent equipment finance companies?  A new survey of ELFA members tackles that question—and reveals insights into the independent market sector.

ELFA’s Independent Middle Market Business Council Steering Committee conducted the Survey of Independents in spring 2014. The survey was designed to “take the pulse” of the independents, who comprise 21% of the association’s membership.

Pictured: ELFA's Independent Middle Market Business Council Steering Committee

This was the second year the Steering Committee conducted the Survey of Independents. The results from 2013 and 2014 were very similar, with few exceptions. (To view the 2013 results, see the October 2013 issue of Equipment Leasing & Finance magazine.) Following are highlights from the 2014 survey.

Current Business Conditions

Overall, independents responding to the survey had a positive outlook on business conditions:

• 79% reported they had plenty of funding to do their deals.
• 72% saw a strong future for the independent leasing company.
• 72% expected business to be better overall in 2014 than in 2013.
• 72% expected their receivables to increase in 2014.
• 71% expected the economy to be stronger in 2014 than in 2013.
• Only 6% planned to make their credit policies more stringent n 2014.
• A total of 14% said credit decisions were taking longer than in the past.
• Respondents were split on whether they expected their default rate to decrease in 2014 compared to 2013: 23% expected a decrease, 48% were neutral and 29% did not expect a decrease.

Customer Behavior

Respondents reported the marketplace remains highly competitive:

• A majority (79%) said they are seeing more competition for their existing business. This figure is up from 73% in 2013.
• A majority (66%) said their company had more competition from banks than a year earlier.
• A majority agreed that customers are:
  • Focusing more on pricing (68%);
  • Actively seeking additional bids (64%);
  • More sophisticated in choosing their funding choices (59%); and
  • Taking longer to make decisions (53%).

Technology

Independents continue to invest in their IT operations:

• More than half (51%) of respondents had increased or expected to increase their IT capacity in 2014. Of those, a majority (57%) planned to expand front-end operations, while 37% planned to expand in the area of accounting, 18% in billing and 16% in pricing.

• A smaller but still significant number of respondents (41%) had bought or expected to buy new software in 2014.
• When asked what type of lease processing solution they use, almost half (47%) had purchased a third-party solution, 37% used a combination of a third-party solution and their own custom solution and 13% had created their own custom solution.
• When asked if their company’s internal technology systems help or hinder their business, respondents gave an upbeat response by a 3-to-1 margin. In the open-ended response section of the survey, a total of 34 respondents commented their technology helps their business, 10 said it hinders their business and 12 gave a neutral response.  
• IT staff size varied, with a majority (53.1%) reporting having 1-3 people on their company’s internal technology staff (not including outside consultants), 19% reporting more than 10 such employees, 14% reporting none, 7% reporting 4-6 and 6% reporting 7-9.

Lease Accounting

Changes in accounting rules that would bring all or most leases on balance sheet have been under consideration by the accounting standards-setters—the IASB and FASB—since 2006. Most independents responding to the survey (92.5%) were aware of the proposed lease accounting changes and a majority (57%) was concerned about how the changes would impact business. However, only 25% were spending time and money preparing for the changes, perhaps because more than half (60%) believed their IT systems would handle any potential changes in lease accounting rules.

External Factors Affecting Business

Many respondents—but not a majority—expressed concern about the impact of federal and state policy and regulations on business:

• Almost half (44%) agreed that federal government regulations had increased their company’s cost of doing business over the past year, and slightly fewer (42%) agreed that federal fiscal policy uncertainty hinders their ability to plan for the future.
• About a third (29%) agreed that state or local government regulations had increased their cost of doing business over the past year, and fewer (23%) agreed that state and local policy uncertainty had hindered their ability to plan for the future.
• About a third (38%) agreed that changes to banking regulations would help independent lessors.

Employee Engagement

Employee engagement, recruitment and retention are clearly a priority for independents, and efforts in these areas appear to be paying off. However, some challenges remain:

• Employees have a clear career path at their company, according to 63% of respondents.
• Adequate training opportunities are offered to employees, according to a majority (63%) of respondents. A third (30%) planned to increase their training budgets this year.
• What motivates employees? Respondents said employees at their company are motivated by salary (75%), and also by team engagement/atmosphere (60%) and bonus (56%). Other factors are challenging work (30%), flexible work schedule (30%), recognition (27%), additional perks (food, entertainment opportunities, etc. - 17%) and telecommuting (1%).
• The chief reason employees leave the company are better opportunities elsewhere (56%), poor fit (41%), being asked to leave (33%) or they don’t like their manager (10%).
• Employee turnover was a concern for 18% of respondents.  

Hiring Trends

Employee recruitment is another critical area for independents, and the independent sector is betting on business growth, based on their reported hiring trends:

• In a sign of strong optimism, 82% had hired or expected to hire employees in 2014. Of those hiring, 89% were hiring in originations/sales, 68% in operations, 27% in risk, 23% in IT and 16% in administration.

• Only a third (34%) said it’s easy to hire qualified, experienced employees, while 41% disagreed. The areas in which respondents had the hardest time finding qualified employees were originations/sales (74%), operations (21%),  risk (14%), and administration (10%).

• Companies use a variety of channels to find employees. Referrals topped the list (70% use this method), followed by search firms (67%), word of mouth (65%), online job boards (48%) and LinkedIn or other social media sites (36%).

Business Focus

When asked to identify the primary industry focus of their business, independents indicated that technology continues to be the leader. The top five responses were high-tech/computers, medical, energy (oil/gas/alternative), material handling and transportation (vehicles). A notable change from 2013 was the increased position of energy (from 21% in 2013 to 45% in 2014) and material handling (from 33% in 2013 to 45% in 2014).

Top Areas of Concern

When asked, “What business issues keep you up at night?” independents focused their responses in four areas:

• Originations
• Access to funding
• Regulation/Government
• Increased competition

Treasured Member Benefits

When asked what they see as the most important benefits of ELFA membership, independents ranked top benefits as follows:

• Staying informed on industry news, trends and market updates (80%)
• Networking opportunities (66%)
• Access to industry research and statistics (65%)
• Business and professional development opportunities (54%)    
• Being represented in state, federal and regulatory advocacy    (50%) 

Demographics

The survey respondents had the following characteristics:

• The respondents represented diverse geographic areas, job levels and job functions. As for job level, almost half of respondents (42%) were in a senior vice president, vice president or similar role; 37% were C-level executives; 17% were at the staff level and 4% were managers. The top three job functions were president/CEO (21%), sales (21%) and finance (16%).
• Company size among respondents was as follows: fewer than 25 employees (31%), 25-50 employees (15%), 51-100 employees (25%), 101-1,000 employees (21%), and more than 1,000 employees (7%).
• Annual volume also varied among respondents: under $50 million (18%), $50 million to $250 million (51%), $250 million to $500 million (12%), $500 million to $1 billion (7%), $1 billion to $5 billion (6%) and over $5 billion (5%).

The Survey of Independents was conceived and analyzed by the ELFA’s Independent Middle Market Business Council Steering Committee. For more information, please contact Committee Chair Dave Mirsky (dmirsky@pacrimcap.com) or staff liaisons Amy Vogt (avogt@elfaonline.org) and Richard Shanahan (rshanahan@elfaonline.org).