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Equipment Leasing & Finance

What Lies Ahead?

May/June 2019


Avid sports fans can become superstitious during long winning streaks. The longer the winning season, the more exuberance gives way to cautious optimism—and perhaps some self-depreciation. Speaking with leaders in equipment leasing and finance has a similar feel lately. The industry is doing well, but the longer the expansion goes on, the more leaders become concerned about a possible downturn. For many industry veterans, memories of the economic downturn are still fresh, even though it was roughly a decade ago.

Members of ELFA are still experiencing positive conditions overall. The association’s quarterly Beige Book compiles survey data from four of the organization’s Business Council Steering Committees (BCSCs)—captive and vendor finance firms, financial institutions, independent middle market companies and small ticket firms. And while each BCSC reported another quarter of growth to close out 2018, uncertainty around recession indicators, trade agreements, the new tax law’s impact and other factors are creating a few clouds in the distance.

Each of the four BCSC chairs reviewed the Beige Book data from 2018’s final quarter. Here they share their insights about growth, competition and what lies ahead.


Growth is still the name of the game for many members, says Shannon Stangl of DLL.

Growth Is Strong and Competition Is Fierce

Growth is still the name of the game for many members, including the Small Ticket BCSC, says Shannon Stangl, Committee Chair and Country Sales Manager at Wayne, Pennsylvania-based DLL. All small ticket respondents reported a year-over-year increase in new business, and her firm was no exception.

“We have been fortunate,” Stangl says. DLL’s investment in improving auto decisioning rates, especially, has paid off. “Our auto decision rates are close to 70% and our approval percentages are in the 80th percentile.” Such precision focus on profitable sectors is common strategy among some member segments and an example of how some members are strengthening their positions in certain lines of business.


Media attention may be fueling fears of a slowdown, says Troy Graziani of Toyota Industries Commercial Finance, Inc.

In addition, capital is still flowing. Across all business sectors, slightly more than 9% reported lack of capital affecting new deals. The number was greatest in the captive and vendor finance sector, where the number was roughly one in four.

However, growth today requires hard work. “New business volume has been strong, primarily driven by continued market growth. Competition remains fierce as companies search for yield in a raising interest rate environment,” says Troy Graziani, Chair of the Captive and Vendor Finance BCSC and Director of Corporate Operations and Business Intelligence at Toyota Industries Commercial Finance, Inc. in Dallas. As a result, most respondents (60%) saw spreads narrowing, with the small ticket sector hardest hit—88% of respondents reported spreads getting tighter. Overall, 35% of respondents across all sectors reported spreads remaining the same while just 5% saw them increase.

Kirk Phillips, Chair of the Financial Institutions BCSC and President & CEO of Wintrust Commercial Finance in Frisco, Texas, says that his firm was among the minority that saw spreads widen. He chalks up the increase to the firm moving to more direct origination, so they capture more of each deal’s value. “I also think our entire team across the board does a better job of pushing relative value pricing, rather than just bidding on a deal and trying to beat the market,” he says.

Competing Means Accepting More Risk

As ELFA members face stiff competition, there are signs that they may be starting to take on more risk, too. While just 6% of those reporting year-over-year increases overall attributed the bumps to looser credit underwriting, one-third of those in the Small Ticket BCSC said looser standards led to more business.

“We are seeing some lenders start to widen their credit box in an effort to hit their numbers and attract business that they’re losing to an over-abundance of competition,” says Brian Eschmann, Chair of the Independent Middle Market BCSC and President of Trans Lease, Inc. in Denver. “There’s definitely some risk being taken in the industry.”


Many ELFA members are still processing how the new tax law and lease accounting standards will affect them, says Kirk Phillips of Wintrust Commercial Finance.

Nearly one in five (19%) respondents overall reported jumps in delinquencies and losses, but that ratio jumps to half in the small ticket sector alone. Fourteen percent said delinquencies and losses declined overall—most so in the captive and vendor finance sector, where one in four reported declines. For most (67%), delinquencies and losses stayed the same. And while tight post-recession underwriting had meant a long stretch of near-historic lows in such late and non-payers, members have been reporting increases over the past years. “You look at some of the financing that’s being done both inside and beyond the equipment finance world and think to yourself, ‘Gee, we’re back to that?’” Eschmann says.

Graziani isn’t worried now but says it’s something to watch. “The overall credit environment remains relatively stable. With sustained growth over such a long period, changes in delinquency and charge-off trends will be something to closely monitor for the foreseeable future,” he says.

Competition and losses haven’t affected hiring zeal, however. Across all sectors, 72% of respondents say they’re staffing up, while 23% expect to keep employee headcount the same.

Standout Industries Are (Mostly) Based on Specialization

Another constant that has carried forward quarter after quarter is that specialization can make one firm’s laggard another firm’s standout. Just as Stangl’s DLL has built specializations in healthcare, construction and technology financing that have performed well, other firms have specialized too. Developing deep expertise in a vertical market allows ELFA members to know the terrain and build a solid book of business. It’s also the reason that industries like construction and agriculture appear on the both the “best” and “worst” performing industries for sectors like captive and vendor finance.

ELFA Members Face Challenges—But Keep Growing

ELFA members and their customers continue to face changes and challenges with grit. Many are still processing how the new tax law and lease accounting standards will affect them, Phillips says. He doesn’t expect the impact of those changes on equipment leasing and financing to be clear for some time, especially among privately held companies, which may be less well-versed in such areas than public companies, which may have a deeper bench of tax and finance professionals.

Other matters are more front-of-mind for his BCSC’s customers. The tight labor market is driving up costs. So are trade disputes and the cost of state, local and federal regulation compliance.


There’s definitely some risk being taken in the industry, says Brian Eschmann of Trans Lease, Inc.

Graziani says that media attention may be fueling fears of a slowdown. “Most pundits see a recession on the horizon to the point where it’s probably going to become a self-fulfilling prophecy,” he says. “Properly planning and having appropriate contingency strategies prepared now is critical.”

Phillips also ponders whether fears may be overblown, reiterating a point made at a recent ELFA event: “Expansions don’t die of old age.” Usually, an event disrupts expansion rather than a fixed economic cycle. He points to Australia’s 28-year expansion as an example. But it’s better to be prepared. His firm tightened credit underwriting last year to better position itself for an economic slowdown.

Eschmann says the inverted yield curves also point to a looming downturn, perhaps within the next 18 months. But, the overall vibe is good—consumer demand is strong enough to help businesses “drown out the noise” and keep moving forward. “I think there are a lot of reasons to be positive but also to be a little bit cautious,” he says. 

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