State of the Equipment Finance Industry
In 2012, The Equipment Leasing & Finance Foundation commissioned IHS (IHS Markit) to conduct comprehensive research on the size and expected growth of the U.S. equipment finance market. In lieu of producing its annual State of the Equipment Finance Industry Report in 2016, this year the Foundation commissioned IHS Markit to conduct a new study, analyze changes, and forecast potential future growth. By cross referencing various public and proprietary databases, the new study provides an in-depth review and analysis of equipment financing volume at the national and state level.
Current and Forecasted Overall Equipment Finance Activity:
- In 2015, total public and private investment in equipment and software totaled $1.5 trillion, of which 68% or $1.02 trillion was financed, according to an estimate based on data from IHS and the U.S. Department of Commerce Bureau of Economic Analysis. The 68% share of equipment financed is a significant increase over the 2012 estimate of 55%.
- In 2015, nearly 8 out of 10 (78%) of businesses used at least one form of financing when acquiring equipment (excluding credit card use). This is an increase from 72% of businesses reported in the 2012 study, and represents an increase in the overall propensity to finance.
- In 2016, the market for equipment and software investment is expected to be relatively flat at $1.5 trillion, increasing by only 0.5%. However, due to excess liquidity and strong competition, which have driven down the cost of borrowing, finance volume is expected to outpace total investment growth.
- By 2020, total investment in equipment and software is expected to reach $1.8 trillion, of which $1.24 trillion is projected to be financed.
- Of the 68% of equipment that was financed in 2015, 39% was leased, 16% used a secured loan and 13% used a line of credit. This represents a major shift toward the use of leases and secured loans, which accounted for only 17% and 9% of the total value of financed acquisitions in 2011, respectively. This also marked a significant shift away from lines of credit, which accounted for 29% in 2012.
- The share of cash acquisitions declined for companies of all sizes from 2011 to 2015. With low interest rates, strong competition among lenders and abundant liquidity, financing equipment acquisitions is especially attractive as lenders compete to offer the best rates to borrowers.
- The three biggest equipment types companies acquired in 2015 were communication equipment, computer equipment, and software, which together accounted for 41% of total equipment acquisitions.
- Companies with total acquisitions less than $25,000 are using relatively little financing, likely due to the general upward trend of financing standards required by banks. The rate of financing is greater for higher total acquisition amounts:
|Total acquisition amount
||Rate of financing
- 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.
Table of Contents:
- Purpose of This Study
- Primary & Secondary Data Sources
- Market Segmentation
- Executive Summary
- Gauging the U.S. Market for Equipment Finance
- The Prospects for Equipment Finance Growth
- Interpreting the Results of the 2016 Foundation Borrower Survey
- Equipment Finance by State
- Short-Term Outlook for the Equipment Finance Industry
- Economic Outlook
- Analysis of the 2016 Survey of Equipment Finance Activity
- About the Researcher