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Study: Financing of Equipment Acquisitions Grows in 2015

October 27, 2016
A Nordex manufacturing facility in Jonesboro, Ark. Image courtesy of the U.S. Dept. of Energy
A Nordex manufacturing facility in Jonesboro, Ark. Image courtesy of the U.S. Dept. of Energy

78% of U.S. companies – or eight in 10 businesses – surveyed for a new report by the Equipment Leasing & Finance Foundation reported using a form of financing to acquire equipment in FY2015, up from 72% reported the previous year, a press release issued by the organization Monday said.

“The analysis reaffirms the [equipment leasing and financing] industry as an integral component of the U.S. economy, enabling firms – both large and small – to acquire capital assets to operate and grow their businesses,” said Ralph Petta, president of the foundation and president and chief executive officer of the Equipment Leasing and Finance Association, in a statement.

The U.S. Equipment Finance Market Study: 2016-2017, conducted in conjunction with market research firm IHS Markit, predicts that the market for U.S. equipment financing will increase by 1.31% to a total of $1.03 trillion in 2016. Private and public investments in equipment and software are anticipated to remain flat this year, growing only by 0.5% in 2016. The previous year public and private investments grew by 4% with a total value of $1.5 trillion.

“Due to excess liquidity and strong competition, which have driven down the cost of borrowing, finance volume is expected to outpace total investment in equipment and software,” the report said, blaming “excess global capacity, low commodity prices, a strong dollar, sluggish export markets, and the collapse in drilling for oil and natural gas” as the main reasons why companies are refraining from capital investments.

Some key findings from the report are:

- 68% of the total value of equipment and software acquired in 2015 was financed, a larger figure than the organization’s forecast of 55% in 2012.
- Growth in equipment and software investment is projected to grow modestly in 2017, rising by 3%. The organization expects that total investment in equipment and software will hit $1.8 trillion by 2020.
- The organization estimates that the equipment finance market (including software) is $1.02 trillion in 2015. The market is forecasted to grow to $1.24 trillion by 2020.
- 68% of all equipment and software acquired in 2015 was financed. Of that that figure, 39% was leased, 16% used a secured loan, and 13% used a line of credit. The organization said this represents “a major shift toward the use of leases and secured loans.”
- The share of bank financing for equipment and software fell in 2015 to 47% from 57% in 2012, with the organization noting that banks “remain the primarily lenders across all equipment types” in 2015.
- Low interest rates, strong competition from lenders, and abundant liquidity are drove down share of cash purchases for equipment and software from 2011 to 2015.
- Echoing data from the Foundation’s 2007 and 2012 market studies, this year’s report confirmed that larger ticket purchases are more frequently financed than smaller priced acquisitions.

To read the complete study, visit www.leasefoundation.org/research/sefi

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