The shift is unmistakable. Whether it’s something new, or a re-emergence of a former reality, there’s little doubt that private capital is making its presence felt in equipment financing.
As many banks have retreated from the equipment finance market for a variety of reasons, private capital has stepped into the gap.
“Private equity sees a huge opportunity for volume. They’ve got an appetite for investment that they can’t fill in other markets,” says Jeffry Elliott, Founder and CEO, Elevex Capital.
“The mere presence of private credit lenders is prompting all participants to sharpen their offers and leverage their capabilities,” says Kevin Ronan, Managing Director for First Citizens Bank Capital Equipment Finance and its private capital affiliate Sixty-First Commercial Finance.
“Competition is increasing with more firms entering the private credit equipment finance space,” Ronan notes. “This competition will impact pricing, fees, structures, etc. Those who are highly experienced and creative in structuring transactions will be the ones who will successfully win more deals.”
“In the past few years, independents of all sizes have had a kind of renaissance,” says Dave Fate, Senior Advisor and Vice Chairman, Stonebriar Commercial Finance. “They’re benefiting from a new asset-backed securities product that didn’t exist previously in the market, giving them a new financing source of capital.”
Back to the future?
But private capital is hardly a shiny new object in this industry, maintains Eric Miller, President and CEO, Ansley Park Capital. “I think it’s more about the re-emergence of non-bank financing rather than the rise of private credit,” he says, noting that pre-2008, non-bank lenders such as GE Capital, CIT, Transamerica, etc., dominated the market.
Post financial crisis, the Federal Reserve’s quantitative easing flooded banks with deposits, prompting their expansion into equipment financing, where they eventually captured more than 70% of new business volume.
Now the pendulum is swinging back. ELFA’s 2024 Survey of Equipment Finance Activity shows that in just one year the banking sector’s share of new business volume dropped from 63% to 56.8%, while independents surged from 7.3% to 12.7%.
“There’s typically an asset liability mismatch on banks’ balance sheets, with short-term deposits trying to fund long-term assets,” Fate says. “The regulated piece of this industry is going to keep shrinking, and the independent piece will keep growing.”
Miller believes the cycle now favors independents and outside investors. “The term ‘private credit’ is in vogue and so everyone wants to latch on to it,” he says. Ares Management’s Alternative Credit Funds investment into Ansley Park Capital generated significant industry attention, and “investment in our industry from such a prominent asset manager should give great confidence to the industry.”
A lot to offer
Equipment financing is catching the eye of private investors because it has many benefits, including low default rates with minimal losses, strong recovery rates when defaults do occur, and equipment replacement cycles that offer built-in business continuity.
For example, equipment financing can assist more-leveraged companies get essential equipment needed to continue operations. In the event of a bankruptcy, the lease is typically accepted, and the lessor continues receiving payments.
Bill Phelan, Co-Founder and Business Leader, PrivateCap, notes the market’s broad diversification – from retailers to medical facilities – all relying on lease contracts. “Business lessees can pose less risk than other investable assets such as high-yield bonds or even sectors of the home mortgage market,” he says. “Businesses don’t typically walk away from essential assets.”
Agile, with money to lend
In this environment, private investors can offer distinct advantages: ready capital access, competitive funding costs, and significantly less regulatory burden than banks.
“Private credit is good at attracting capital because they understand the risk/reward framework and they have the relationships with institutions looking to invest,” Phelan says.
In addition, private lenders typically have a higher risk appetite than banks, Ronan says. This allows them to tailor and finance deals that banks may pass up due to regulatory constraints or other credit risk thresholds.
Private lenders also often move faster and offer more structural flexibility.
That flexibility can be critical for higher-leverage borrowers with tight cash flow, Ronan adds. For example, a company losing a major contract might struggle to secure bank financing, but a private lender could accept that risk in anticipation of contract replacement – a scenario where banks would likely pass.
“If you’ve got the most critical asset they need to run their business, and the company files bankruptcy, typically the lease will be accepted,” Fate says. “We’ve had 18 bankruptcies, and every lease got accepted and all payments made.”
Demand for deep asset knowledge
However, challenges exist. “Sometimes, private equity lacks an understanding of credit in the equipment financing space,” Elliott says. “For instance, they prefer to have deals standardized, for a smaller $250,000 deal to look the same as a $5 million deal, which is not how it works in this industry.”
William Stephenson, Global CEO, PEAC Solutions, cites asset knowledge as a key success factor. “A deep understanding of the equipment and how it will be used is necessary to differentiate your offer and spread risk across the customer, the asset and the deal structure,” he says.
Ronan highlights another concern, since private lenders often target lower credit segments. “Maintaining consistent risk discipline and understanding collateral values through a transaction’s life is critical,” he says. If deals go bad, recovery depends entirely on accurate collateral evaluation analysis.
“In some instances, private fund investors may have little patience for these details and the nuances of equipment finance,” Stephenson adds. “Leasing is not a short-term game. If you are focused on growing a strong performing portfolio, you have to embrace the details and be in it for the long haul.”
Diverse strategies
Elliott notes private financing comes in different forms: some want repeatable, small-to-mid-ticket volume while others focus on large-ticket secured financing.
“Private credit gives the independent the extra dry powder, if you will, to keep on originating when traditional capital dries up,” Phelan says.
The following examples show the diverse ways private capital is entering the market:
Ansley Park: While Ansley Park Capital is a newer large-ticket independent equipment financer, there’s another way to look at this company, acquired by Ares Management Alternative Credit Funds more than a year ago. “Our platform’s been around since 2015 and many on our team have been working together since 2003,” explains Miller.
Ansley Park Capital’s team and operating platform were acquired from BciCapital, the equipment finance business of City National Bank of Florida. “Many of us worked together at GE Capital and CIT where we developed great expertise in non-bank transactions, and we had a strong preference to only meet with non-bank purchasers,” Miller relates. Ansley Park offers equipment-based solutions ranging from $5 million to more than $100 million.
Ares Management Alternative Credit Funds committed approximately $400 million of equity capital to Ansley Park, which will enable them to originate more than $3 billion in equipment loans and leases. Ansley Park came on strong, announcing last October that it had surpassed $200 million in funding in its first full quarter of operation and approximately $400 million in the partial year of 2024.
Elevex Capital: As a general lessor, Elevex Capital targets underserved markets, especially those banks have pulled away from. “Many solid companies struggle to access the capital they need,” Elliott says.
Where banks have pulled back internal equipment finance departments, Elevex, which began in January, is helping fill the void, Elliott says.
Sallyport invested in Elevex through its studio model. “In the future, when the time is right for an exit, we will carefully evaluate and partner with an investor who is aligned with Elevex’s growth vision and innovative business model,” Elliott comments.
“It’s not always about credit; it also can be about structuring,” Elliott says. “Understanding our asset valuation and how to propose a true lease is what we’re about. It enables us to bring in a different product.”
PEAC Solutions: Formed in 2022 after the acquisition of Marlin Business Services, PEAC Solutions is owned by funds managed by HPS Investment Partners.
“HPS is deeply committed to equipment finance and our long-term success,” Stephenson says. The numbers tell the tale: PEAC Solutions ranked among the top three independent U.S. lessors for the past two years, growing new business volume from $509 million in 2022 to $1.49 billion in 2024. “We are growing market share because our customers see this commitment and the value we bring to the table,” he adds.
PEAC also has operations and funding capabilities in the United Kingdom and Europe. “There hasn’t been a new international player to enter this market in more than 20 years,” Stephenson says. “We cover the entire value chain. This is not a short-term play for us.”
PrivateCap: “No one has really figured out the keys of the kingdom to bring in consistent and large pools of institutional capital to the equipment finance market,” Phelan says. “PrivateCap is about attracting that capital to bring a new source of funding to independents, and even banks and captives.”
Started last October, PrivateCap’s funding platform is designed to connect institutional investors with originators focused on small- and mid-market leases and loans.
“If an investor like a pension fund or an insurance company doesn’t understand the market, they run the other way,” Phelan says. “We’re here to bridge the gap and establish equipment finance as a recognized asset class with these investors.”
Phelan’s team is using their 20-plus-years’ experience at PayNet, which provides credit assessments on small businesses, for risk assessment by lenders. “That experience helped quantify the risk of the small-ticket equipment finance industry and it’s a story that’s not been told well to institutional investors.”
Sixty-First Commercial Finance: Launched in February, Sixty-First Commercial Finance is a joint venture of First Citizens Bank and Sixth Street Partners and is designed to meet the financing needs of both bank and non-bank clients. The new platform is managed by First Citizens Institutional Asset Management and is funded through a bilaterial $300 million warehouse finance facility arranged by Bank of America.
“We are leveraging the strengths of two well-respected market leaders: First Citizens Bank and Sixth Street Partners,” says Ronan. “Each partner brings to the table the unique experience and capabilities needed to address the financing needs of bank and non-bank clients alike – all under one roof.”
The company will provide mid-and large-ticket equipment financings ranging from $5 million to $100 million to middle market companies across various industries.
Stonebriar Finance Holdings: Managed by Eldridge Capital Management, Stonebriar is the largest independent equipment finance firm with more than $15 billion of funded transactions since 2015. The company has more than $8 billion in assets under management and funded more than $3 billion in 2024.
“We hit the market at the perfect time,” is how Fate describes the creation of Stonebriar in 2015, filling the void left by GE Capital’s exit and benefiting from a low-interest rate environment that made capital much cheaper.
“It just gave us a significant runway to come out and build a $8 billion diversified commercial finance company in short order,” Fate says. “It’s been a great time to be in the business and now because of the size and scale of our investment grade balance sheet the business is built to run for decades.”
“We don’t chase volume,” Fate says. “We continue to say, ‘just focus on doing good deals and the rest will take care of itself.’ We have good people, and they know what they’re doing.”
Technology as a differentiator
Technology is becoming a key competitive advantage for multiple industry players.
PEAC Solutions took a ground-up approach. Rather than update a legacy system, it is building entirely new infrastructure. “We didn’t want to renovate an old house; we wanted to build a new one,” Stephenson explains. “Now we can go from application entry to funding in minutes and our foundational system allows easy upgrades.”
Elevex is also relying on technology, using AI to analyze lease documents against base leases in secondary market transactions, and automating due diligence searches for missing documents.
“We’re looking to automate these tasks so we can focus on more high-level decisions,” Elliott says.
First or second inning
Experts are optimistic about the role of private credit, with room for multiple market participants driven by evolving capital sources and business models.
“We’re still now in the first or second inning of private credit,” Phelan says. “We’re going to see more partnerships between banks, independents and private credit funds. This is going to make the industry more resilient.”
Others agree. “I see the role of private credit maturing into a core capital source for asset-heavy and industrial borrowers,” Ronan says.
Stephenson says there’s “room in the sand box” for all players. “What we do is absolutely enduring,” he continues, “but how it gets done is the million-dollar question because disruption is not only coming, it’s already here.”