Growth. Increased demand. More competitive deals. New entrants to the market.

Industry experts are expressing optimistic notes for the 2025 funding market, grounded in credit quality and strong relationship-based business. To frame that forward-looking position, reviewing an interesting 2024 provides perspective.

A look back at 2024

“Last year was a year marked by uncertainty, with interest rates and the presidential election serving as the biggest factors,” says Bob Johnson, vice president of capital markets at Summit Funding Group. While rates ended the year not far off from where they began, fluctuation throughout the year included a 90 bp run-up into May, he explains. Next came a drop of a full point and a half leading into the election, with rates then coming back up another 80 bps. “We were whipsawed around with rates as we waited for the Fed’s decision on when they were going to start cutting, and also what philosophy they were going to adopt after the election.”

Herb Reeder, vice president of Huntington Equipment Finance, agrees, describing 2024 as “fickle and choppy.” Within the industry, different institutions took different routes. Some companies had aggressive growth goals; others looked to maintain their 2023 spreads with a liquidity focus. At Key Equipment Finance, the emphasis was on streamlining and lending to core clients, according to Sera Oliver, director of capital markets. “Credit became tighter in 2024,” she says. “Banks were conserving capital, and were less aggressive with lending.” 

Yet, she says, by the end of 2024, things were starting to open up. By maintaining focus on credit, she says that the company was able to start considering transactional pieces of business with an eye on growing that relationship in the future. “This is continuing into 2025,” she states. “We’re opening up our lending more, looking to grow assets and acquire customers. We’re in a growth mode again.”

Growth and competition in 2025

Reeder concurs with the growth outlook for the industry. “I look at M2,” he says. (M2 is a measure of the money supply that includes cash, checking deposits, and other deposits readily convertible to cash, such as CDs). “It has increased significantly since last summer. Greater liquidity means banks have more money to invest, and are thereby able to focus on growth.” He believes growth will take many forms this year, with some businesses gearing up for growth to acquire or get acquired. “There’s some M&A in the air.”

James Currier, chief revenue officer at Finloc 2000 (USA) Inc., also believes 2025 is shaping up to be a solid year for equipment finance. He points to the Equipment Leasing & Finance Foundation’s prediction of a 4.7% increase in equipment and software investment. With more than three-quarters of businesses planning to use financing for their equipment purchases in 2025, “demand is definitely there.” He sees momentum accelerating in the second half of the year.

“Greater liquidity means banks have more money to invest, and are thereby able to focus on growth. There’s some M&A in the air.” 

—Herb Reeder, Huntington Equipment Finance

Johnson sees growth in different contexts. The market will see plenty of new entrants this year from sources including joint venture partnerships, insurance companies, private credit firms and new platforms. “There’s no shortage of demand right now,” he says. “At Summit, we are seeing investor demand for equipment finance as an asset class at an all-time high. Investors are looking at the asset class because of its secured nature, and for a fixed rate they can lock in for a relatively long duration.

Yet this also will drive an environment of “too few deals being chased by too many dollars,” he says, which could make things more competitive. “As a result, we’ll see lower spreads, and lenders will start pricing lower to win business.”

Basel III

Johnson also points to questions around the implementation of the Basal III Endgame. (This set of proposed rules would strengthen bank capital requirements and risk management, and is intended to align with the Basel III standards, developed after the 2007-09 financial crisis.) “We may see banks come back into the market in ways we haven’t seen in the past few years,” he states. “There will be new partners as well as rebranded partners at every level of the credit spectrum, which, again, will make it that much more competitive to win business.”

Reeder adds that captives and independents will add to the mix, too. “These companies will continue to increase and become more prominent in the industry, as some borrowers – particularly credit-challenged ones – find the traditional bank process too slow or cumbersome.”

Credit

Across the board, experts are clear that credit remains a priority. Credit quality and structure will be roughly the same this year as last for Huntington Equipment Finance, says Reeder. Oliver echoes the sentiment. “Our credit box has remained as tight as it has been the last year and a half,” she says. “We’re still conservative, holding the line on credit, given economic and political uncertainties.” She also is experiencing the same notion on the sell side with the firms to which Key Equipment Finance is syndicating.

“We may see banks come back into the market in ways we haven’t seen in the past few years.” 

—Bob Johnson, Summit Funding Group

That said, she stresses that if lenders are going to hold the line on credit quality and still want to grow, something is going to have to give. That “something” will be rate. “Regarding overall profitability of a deal, yields will have to be reduced.”

At Summit Funding Group, “we’re always credit-first,” says Johnson. “We will continue to be vigilant in evaluating the companies we lend to so that we create a portfolio for our bank and our syndication partners that can withstand down markets.” He points out that the market has not had a real “credit event” since 2008. “Eventually, an event will happen, so it is important that we are adequately pricing risk, and that we are being diligent in our credit underwriting and remember this is a credit-first industry.”

Markets to watch

Transportation continues to be in the mix when discussing markets to watch in 2025. “It’s an industry we’ll keep our eye on and be careful with,” says Oliver.

Reeder and Johnson are cautiously optimistic. “I think the industry has either hit bottom or is already heading back up,” says Reeder. Johnson points to “light at the end of the tunnel,” but stresses his firm’s policy of working with clients it truly knows and understands, and that bring a clear differentiator to the market.

Markets that look robust include construction and agriculture. “Construction is expected to remain strong in 2025 because of the infrastructure projects that have been budgeted for,” says Oliver. “And while 2024 was challenging for agriculture, our experts think 2025 may be better – with the caveat of concerns over labor shortages.”

Johnson adds infrastructure and data centers to the sectors with the most tailwinds this year. “There’s a lot of work to be done, which means more assets to finance and more ways to partner – with construction companies as well as service providers.”

Renewable energy may be stronger than some would expect. “We’re starting to reap the rewards of our efforts in this market, which has been ramping up for several years,” says Oliver. “We think it will continue to be strong through 2025.” Reeder agrees that the opportunities in renewable energy remain strong. 

Johnson offers a nuanced take on the renewable energy market. He predicts that hydrogen, solar and natural gas will see significant investment over the year ahead. He believes that the 30% investment tax credit for investments in renewable energy assets – part of the Inflation Reduction Act (IRA) – should remain available throughout 2025. “There’s a lot of uncertainty with the new administration, but even if it rebrands the IRA, the tax credit has support from constituents in both red and blue states,” he says, explaining that it accelerates investment in the U.S. economy.

“I think 2025 is going to shape up as a more competitive, but more successful, year.” 

—Sera Oliver, Key Equipment Finance

Other concepts, such as the electric-vehicle tax credit, are less secure, Johnson adds, as are industries that are less viable without government support, such as offshore wind.

Currier also sees opportunity in sustainability. “With growing awareness and available regulatory incentives, businesses are looking at green equipment investments, and financing options are expanding to support that.” The technology market – specifically, upgrades – also is shaping up as a major driver. Businesses are investing in more advanced, efficient equipment, he says, and lenders are stepping up to offer financing solutions tailored to those needs. Newer financing models, such as equipment-as-a-service and subscription-based ones, are gaining traction, giving businesses more flexibility in managing their capital.

Interest rates

Everyone is talking about interest rates, and experts in the equipment finance industry are no exception. Yet the impact of rate movements is varied.

Reeder does not see more than two rate cuts this year from the Federal Reserve. “But that isn’t what drives our business,” he explains. “Our investments are driven more by treasury rates, which haven’t been moving in line with the Fed box.” If the Fed does cut rates a little more, he says, the result should be “a nice upward-sloping yield curve.” If the Fed lowers rates and medium-term treasuries follow down, however, the curve will flatten.

“With growing awareness and available regulatory incentives, businesses are looking at green equipment investments, and financing options are expanding to support that.” 

—James Currier, Finloc 2000 (USA) Inc.

Johnson sees an environment of “healthy” rates. “Over the past three years, rates have moved from near zero to what we believe are healthy rates now – for businesses to make capital-allocation decisions and for investors to be priced for their risk.” That said, he thinks this will have two immediate impacts this year. One is that it will create strain on underlying companies as their margins continue to be strained from higher interest rates and from inflationary costs and services. The other is that it will give pause for syndication partners to be diligent on their pricing, and not go particularly low to win business. “This goes back to the concept of continued spread compression and making sure that you are adequately pricing in risk.”

Strategic relationships for the long run

Understanding customers and working to help them meet their unique challenges are at the front of experts’ minds. “How Summit treats its customers and syndication partners will be the most important priorities for us this year – as it has been every year,” says Johnson. “It’s easy to be a financier when times are good,” he says, “but being able to work through customer challenges during difficult times, and manage a broader relationship with a syndicate, is a keystone quality.”

He adds that in a market of increased competition, it is essential to take stock of funding partner relationships and value them in terms of their reciprocal nature. “Reciprocal relationships are very important so that both companies – customers and financing providers – hit their volume numbers and still maintain profitable execution on deals.”

On the client side, Currier notes that businesses are looking at financing as a strategic tool more than ever. As they plan for the future, they are optimistic, he says, and when businesses are optimistic about the future, they’re more willing to invest in new equipment. That, in turn, gives lenders the confidence to provide financing. “Despite some economic uncertainties, we’ve seen a lot of resilience. Businesses are adapting, making smart decisions and finding ways to keep moving forward.”

“I think 2025 is going to shape up as a more competitive, but more successful, year,” concludes Oliver. “I see things getting back to where we used to be, before 2023 and 2024. “Momentum is building, things are opening up and the year has started out busy and strong.”