COVID-19 Derailed Equipment Finance Industry In 2020
Sept. 14, 2021
This reportedly marked the first time in a decade that businesses decreased their overall spending on capital equipment.
The equipment finance industry saw new business volume decrease 7% in 2020, according to the 2021 Survey of Equipment Finance Activity (SEFA) released by the Equipment Leasing and Finance Association (ELFA). This reportedly marked the first time in a decade that businesses decreased their overall spending on capital equipment, according to the SEFA. However, the 7% decline was less than the double-digit drop expected as the Covid-19 pandemic gripped the world and transformed businesses. The 2021 SEFA reveals pandemic-era impacts and key statistical, financial and operations information for the $900 billion equipment finance industry, based on a comprehensive survey of 104 equipment finance companies.
“While 2020 certainly presented serious challenges, the equipment finance business, overall, showed remarkable resilience and durability, with the industry showing only a single-digit decline in year-over-year new business volume,” says ELFA President and CEO Ralph Petta. “This speaks to the strength of our industry as it equips American businesses to succeed and prosper. As we look to the future, more recent data collected in the first two quarters of 2021 suggest that equipment finance activity should accelerate as overall conditions in the U.S. economy improve.”
Key findings for 2020 as reported in the 2021 SEFA include:
New business volume decreased in 2020 after 10 consecutive years of growth. Following declines in new business volume in 2008 and 2009 during the Great Recession, volume increased year-over-year in 2010 through 2019.
By organization type, banks saw a 10.3% decrease in new business volume; captives saw a 1.6% decrease and independents saw a 2.5% increase. By market segment, new business volume dropped 14.6% in the large ticket segment and 9.2% in middle ticket, while small ticket maintained their new business volume levels.
From an asset perspective, the top-five most-financed equipment types were IT and related technology services, transportation, construction, agricultural and industrial/manufacturing. The top five end-user industries representing the largest share of new business volume were services, agriculture, industrial and manufacturing, wholesale/retail and construction.
Use of electronic documents increased significantly in 2020 over 2019, as adoption of digital tools rose during the pandemic. The share of respondents who used electronic documents to fund at least some of their new business volume grew from 52% to 72%.
Delinquencies rose just 30 basis points overall to 2.3%. Companies contacted customers early in the pandemic and devised individual deferral plans, keeping receivables current during the Covid-19 shutdown so that delinquencies would not spike sharply.
Charge-offs also increased marginally overall to 0.48% of average receivables in 2020.
Credit approvals remained steady year-over-year, as did the percentage of approved applications booked. Though the percentages remained steady, there was a sharp decrease in both the number of applications and the dollar volume from 2019 to 2020.
Employment declined slightly (by 1.75%). Despite Covid-19 restrictions, respondents seemingly made adjustments so that remote working did not result in significant declines in employment.
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