There were many industry trend predictions for 2024, and a recent review left me reflecting not only on the last year, but also on the trends throughout my career that started in 1981, when prime was at an astonishing 20% (and yes, we were still doing business).

While we all wish business was as simple as making predictions for the upcoming year and adhering to those philosophies, it’s not. Our economic markets tend to move directionally over longer periods of time. COVID has also sent massive shocks throughout the system, perhaps forever changing the economy in ways that have not yet been identified.

In regard to what to expect for 2025, I can only share what Summit is seeing currently, and thoughts I have based on what I’ve seen for over 40 years in the equipment finance industry, noting there are always unknowns in an election year. Changes in technology, government spending, regulations, fluctuations in tax rates and geopolitical issues will vastly be important.

Industry shifts – Technology

We are seeing technology affect our clients in industries such as material handling, medical and manufacturing lines. While technology is growing, so is the cost of the equipment, which adds little to no value in the secondary market. Technology is a driver in all industries and will be a larger contributor in our world going forward. AI alone could change many aspects of running a business, as well as alter the equipment that is needed to perform.

AI will have many starts and stops as a business determines the amount of usage required. Understandably, a lot of privacy and social discussions will be imperative to make decisions. Depending on the size of the company, the costs could be higher, and timing may be longer and harder, as all levels of business cannot move quickly enough or afford changes in technology. More importantly, AI cannot replace everything in business, and input/output formulas cannot solve for intangibles. Human intuition and valuations are needed for calculating intangible factors and defining risks that cannot be translated into numbers.

When we turn to the software-as-a service sector, business is strong. We all have read headlines about cybercrimes, malware and other ways criminals try to get data. In 2023, the Federal Trade Commission issued the Safeguards Rule, stating companies are responsible for taking steps to ensure customer information is safe. Thus, data centers must continually upgrade their cyber-software, as well as have state-of-the-art equipment in place to combat hacking efforts. With technology rapidly and continually changing, some clients prefer to finance a lease, which obviously generates a positive impact to our industry.

Education shift

The average cost of college in the United States is now estimated at $38,270 per student per year, including books, supplies and living expenses, according to the Education Data initiative. As we are seeing more students choosing trade occupations, leveraging technical skills over traditional learning, it directly impacts the construction trades in a positive way. Our book of business includes many clients with construction equipment rental companies. With the increase in trade and craft workers, we’re seeing an uptick in the need for rental construction equipment.

Government programs and impact

While most of us like to see the COVID years in the rear-view mirror, the economy and industries we serve are still recovering. This period could be termed a “fantasy economy”—a time when we saw the government pump cash into businesses via the Paycheck Protection Program. Some companies truly needed those funds to get through the shutdowns and reopenings. Meanwhile others didn’t, yet it was free money, so they took it and banked it.

There’s a hangover effect. We’re still seeing cash on balance sheets now being used as companies are buying instead of leasing. Summit has not experienced an influx because of any new government programs. There is a concern that people will change their investments with a reduction in ITC and  bonus depreciation, consequently keeping pricing higher in 2025.

Tailwind impact

Like others, we’re watching the Federal Reserve's attempt to control inflation by pulling levers, including the prime rate. However, firsthand experience and supporting data tell me the business impact related to rate changes tends to lag by about six months or more. I don’t believe we’re going to see a measurable impact to rates until we’re down 75-100 basis points. Most underwriters currently have a conservative credit box, and until there’s a drastic rate shift, will continue to be risk averse. There are some deals that we won’t look at today that might take on a different appeal next year with a potential economic shift.

The common thread

Over the past 40 years, I’ve seen many companies successfully weather multiple economic rollercoaster rides. The truth is this: no matter the rates, economic climate or predictions for the next year, it’s how customers and employees are treated that tends to keep a good company in business. That’s the common thread that needs no predictions now, or in the future.