What trends are driving the equipment finance industry? For insights, the 2024 Survey of Equipment Finance Activity (SEFA) has the most comprehensive compilation of data and intelligence on the industry.  

The 2024 SEFA reveals statistical, financial and operational information for the $1 trillion equipment finance industry in 2023, based on a comprehensive survey of 101 companies conducted earlier this year. 

The six key findings examined below are just some of the highlights. Access the SEFA for a deep dive into a wealth of data to find the business intelligence that can help your company succeed.

1. Banks drove down new business volume growth

New business volume (NBV) increased only marginally by 1.1% in 2023 compared to 2022, One of the most notable findings in the SEFA is the decline in originations by banks. Banks, which have the largest market share of equipment finance company types, saw a NBV decline of 3.3%. The middle-ticket had a similar decrease with NBV of 3.6%, reflecting the predominance of banks in this space. Only 54% of respondents saw their NBV grow in 2023, down from 75% the prior year. Just 43.5% of bank respondents' volume increased, while 60.9% of captives and 62.5% of independents saw their volume increase.

“The bank markets locked up after the failures at Silicon Valley Bank, Signature Bank and  First Republic Bank, triggering liquidity concerns within the financial institution sector,” observes Kevin P. Prykull, CLFP, Adjunct Professor in Finance, Duquesne University and a member of ELFA’s Research Committee. “Banks had to rationalize where to put their capital and how to best use their liquidity. Accordingly, banks looked for opportunities that would earn the best returns and retain current deposits and generate new ones. Since bank leasing companies rarely generate significant deposits, a retrenchment in new business volume occurred, as shown by the data in the SEFA survey.”

2. Higher lending rates and cost of funds

The increase in lending rates in 2023 masked the rise in cost of funds. The significant change was the 162 basis point (bps) jump in cost of funds, the second consecutive year with a significant increase. While pre-tax yields increased, it was only by 145 bps for the last year—not enough to offset the rise in cost of funds. As a result, pre-tax spreads declined by 18 bps overall.

“There was a big jump in the rates that customers were paying in 2023, but the cost of funds increased even more,” says Carol Ann Fisher, PwC consultant and ELFA Research Committee Member. “Lessors didn’t make as much on deals, which also further exacerbated banks’ pullback since low-margin deals weren’t attractive to them.”

3. Portfolios remained strong

Overall, portfolios remained strong in 2023 with 98.6% of receivables current or less than 30 days past due, up from 97.7% in 2022. Delinquencies declined to 1.4% of receivables over 30 days past due compared to 2.4% the previous year. Banks had the lowest delinquencies with 1.0% of their overall portfolio over 30 days past due. Gross full-year losses were 0.39%, down from 0.51% the previous year. While still strong, it is noteworthy that net full-year losses were 0.26%, up from 0.21% in 2022, and recoveries declined to 0.13% from 0.29% the year prior.

“There was a focus on improving the balance sheet and portfolio performance in terms of reducing delinquencies and managing existing assets,” says Fisher. “This suggests that organizations are ready to come back with a strong foundation and take on good assets.”

Mining/oil & gas extraction continues to be the end-user industry with the most delinquencies with 91.9% current, followed by wood/paper/chemical/plastics with 92.8% current and railroad transportation with 94.8%.

Results for key credit metrics remain consistent and generally favorable. Readers should note that the SEFA survey has expanded its data reporting to now include two 15-year history charts consisting of non-accruals, gross charge offs, recoveries, net charge-offs and delinquencies which tell a longer-term story. Prykull notes, “If you are looking for deeper insights into credit risk and credit performance, these charts present such key stats in a very organized, concise manner.”

4. Transportation top-financed equipment type for 3^rd consecutive year

In 2023 transportation equipment held the top spot as the most-financed equipment type for the third year in a row, representing nearly a quarter of total new business volume (23.7%, down from 24.3% in 2022).  Rounding out the top five most-financed equipment types were agricultural, construction, IT & related technology services, and industrial & manufacturing, the same as in 2022.

Equipment types that saw the largest increase in new business volume by percentage were POS, banking systems and ATMs; mining, oil & gas extraction, including natural gas; and environmental controls & electrical devices. The equipment types with the biggest increase in new business volume by dollar amount were agricultural, construction, and trucks & trailers.     

5. Hybrid work dominates despite decline in remote work

Hybrid work continued to be the dominant work location model as 82.7% of organizations had employees working remotely some of the time. Of those, 16% worked fewer than five days a month in office. These are decreases, however, from the previous year when 90.8% worked remotely some of the time and 35.9% worked fewer than five days a month in office.

The SEFA included two open-ended survey questions that provides insights into changes in work arrangements and how they were decided. "Due to a corporate mandate, employees are required to come into the office two days per week for staffing functions and three days per week for management," answered one respondent. Another said the work arrangement is “left to the choice of the employee and driven by other considerations." Another respondent said, "At the beginning of 2023, we returned to working in the office five days a week."

6. E-docs becoming standard practice

The adoption of electronic documents continues to steadily grow post-pandemic with a new high of 97% of organizations reporting that at least some of their NBV is documented via an electronic document. This is up from 88% in 2022.

“The true value of the SEFA is the level of detailed data that provides a nuanced picture for users to interpret and draw their own conclusions,” says Bill Choi, ELFA VP of Research & Industry Services. “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. I encourage all members to complete the SEFA survey.”