United States Construction Equipment Finance Market: Market Driver and Restraint
A significant trend that is influencing growth in this market is the rising preference and need for equipment rentals. Since there is such a big need for construction equipment, finance companies are providing a number of solutions to builders so that they can rent the equipment they need. Builders have observed that equipment rentals are a much better option as they can use the equipment they need without incurring major capital expenditure. Much of the equipment is available at competitive prices, leading to an expansion of the rental business. Consequently, we can expect the demand for construction equipment rentals and financing to rise during the forecast period.
Key Findings from United States Construction Equipment Finance Market Report:
Weak Growth: According to ELFA’s Survey of Equipment Finance Activity (“SEFA”), new business volume growth decelerated to just 2.5%, following 12.4% growth in 2015. Independents once again experienced the industry’s fastest growth (12.0%), while Banks’ expanded at a moderate pace (5.0%) and Captives’ declined (-5.9%). Much of the slowdown was driven by acute factors weighing down the energy and industrial sectors.
Decent Portfolio Performance: Portfolio performance declined from historically strong levels in 2014 and 2015, but delinquencies, charge-offs, and non-accruals remained low. Industry experts report little concern about the state of portfolios due to the industry’s continued cautiousness toward underwriting.
Softer Financials: Along with new business volume, industry profitability took a hit in 2016. The industry’s Return on Average Equity, Return on Total Average Assets, and Income Before Taxes all declined. A rising interest rate environment caused an uptick in costs, and interest expense ratios crept up. However, the decline in profitability does not appear to have been caused by a reduction in credit quality.
A Slip in Productivity: New business volume per sales full-time equivalent (“FTE”) fell nearly 6%, with Banks and Captives driving this decline while Independents’ productivity improved. The productivity decline occurred despite a general atmosphere of intense industry competition, which creates a strong incentive to improve efficiency. However, some of the decline is likely the result of the 13% surge in industry employment, as companies incorporate new hires (often for compliance purposes) into their business operations.
Newfound Confidence: Despite a subpar 2016, the industry appears to be recovering. As the energy sector rebounds and pent-up investment demand is released, the equipment finance industry is poised to benefit. Equipment and software investment grew 4.5% and 8.3% in the first and second quarters of 2017, and according to the August release of ELFA’s MLFI-25 index, cumulative new business volume for the year stands 5.5% above last year’s level.
Uncertainties and Opportunities: The U.S. economy faces an uncertain policy environment caused by government gridlock and shifting political waters. Quietly, however, big macroeconomic developments — including persistently low energy prices, a U.S. manufacturing revival, and the changing nature of retail — are forcing equipment end-users to adapt their business models and creating new opportunities for the equipment finance industry.
Emerging Technologies: Recent advances in financial technology, artificial intelligence and machine learning (“AI”), the Internet of Things (“IoT”), and blockchain technology threaten to upend old business strategies. They may also offer new ways to improve efficiency for firms flexible enough to adopt new business models. While industry players may be tempted to view these technologies as a fad or a threat, those who come to understand them and incorporate them into their businesses will likely be better positioned to increase market share.
The top three external influences on leasing or financing equipment in the next year across all company sizes are general economic conditions, credit accessibility and the anticipated elimination of off-balance sheet financing.
The top three reasons companies gave for financing equipment acquisition over cash purchases were optimization of cash flow, protection from equipment obsolescence and tax advantages.
Most industry experts indicated that they expect very little impact on the demand for leasing from the introduction of new lease accounting standards in December 2018. Under the new guidance, lessees will be required to recognize assets and liabilities for leases with terms of more than 12 months. As the new standards have been under discussion for many years, executives expressed that firms will be prepared for the changes.
United States Construction Equipment Finance Market: Key Players
The scenario in the construction equipment financing market is quite complicated as many construction companies have money tied up with debtors in inventory and receivables. Cash flow management plays a very crucial role, and companies are looking for ways to increase cash flow. In this market, the lenders and borrowers work together to find viable solutions, which in turn will help to spur the prospects for market growth.
Key vendors in this market are American Capital Group, Crest Capital, Fundera, GE, JP Morgan Chase,Marlin Leasing Corporation, TD Bank, Tetra Corporate Services, US Bank, and Wells Fargo.
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