Estimate of equipment finance industry size reaches all-time high of $1.16 trillion in 2021

Estimate of equipment finance industry size reaches all-time high of $1.16 trillion in 2021

The size of the equipment finance industry rose to an all-time high of $1.16 trillion in 2021, as nearly 80% of firms that acquired equipment or software used at least one form of financing to do so, according to a new study, 2022 Equipment Leasing and Finance Industry Horizon Report released by the Equipment Leasing and Finance Foundation (Foundation). The study, commissioned by the Foundation and prepared by Keybridge, estimates that approximately 57% of total public and private sector equipment and software investment was procured via secured loan, lease, or line of credit.

The study draws on the results of a new survey of 617 private-sector equipment and software end-users about equipment and software acquisitions made in 2021. Using the survey data, the Foundation can estimate the current size of the equipment finance industry, assess the propensity to finance private sector investment for key equipment verticals, and forecast end-user plans to acquire and finance equipment and software over the next 12 months.

Highlights from the 2022 Equipment Leasing & Finance Industry Horizon Report include:

Majority of equipment and software acquisitions are financed. Equipment and software investment was historically strong in 2021, expanding by 12.0% to $2.0 trillion in nominal terms. An estimated 57.3% of this investment (and 61.8% of private sector investment) was financed, yielding an industry sizing estimate of about $1.16 trillion.

Share of businesses using financing remains steady. 79.3% of survey respondents who acquired equipment or software in 2021 used at least one form of financing to do so (i.e., lease, secured loan, or line of credit). This is nearly identical to the Foundation’s estimate for 2018, which was based on a 2019 end-user survey.

Leasing remains the most used method of finance. The most common payment method used by businesses to acquire equipment and software in 2021 was leasing (26%), followed by secured loans (19%), and lines of credit (17%). Among non-financed acquisitions, cash (19%) and paid-in-full credit card purchases (19%) comprised similar shares.

Professional services sector leads among industries most likely to use financing. Of the six end-user industries for which a sufficient number of responses were collected, professional services firms were most likely to use financing (70%), followed by construction (67%), and healthcare (64%) businesses. In all six industries, leasing remains the most popular method of finance used, with secured loans being the second-preferred option in most cases.

Small firms less reliant on traditional financing. In terms of both sales revenue and number of employees, small firms are generally less reliant on financing methods when acquiring equipment or software. The propensity to finance ranged from 56–65% across most revenue brackets, but in the two smallest sales brackets (i.e., less than $250,000 and $250,000 – $1 million) it was just 30% and 41%, respectively. Similarly, firms with less than 20 employees were far less dependent on traditional financing methods than mid-size and large firms, choosing instead to rely heavily on credit cards. Firms with 50+ employees financed the majority of their equipment and software acquisitions.

Banks lead in financing volume. As in previous years, banks were the biggest player in the equipment finance industry in 2021, with 53% of equipment and software financing volume. Of this amount, roughly two-thirds was attributed to the end-user’s primary bank and the remaining one-third to a secondary bank. Manufacturers and vendors accounted for 17% of financing volume, independents comprised 14% of volume, and fintechs comprised an additional 14%.

Access to up-to-date equipment and technology among top reasons to finance. Businesses were equally likely to cite “protection from equipment obsolescence” (64%), “tax advantages” (64%), and “optimization of cash flow” (62%) as the primary reasons for financing their equipment and software acquisitions. Compared to the 2019 survey, end-users were significantly more likely to cite each of these reasons this year.

Positive outlook for 2022 acquisitions. A plurality of respondents expects the volume of their equipment and software acquisitions to remain the same over the next 12 months (43%), while a roughly equal percentage expect their acquisitions will increase (30%) vs. decrease (26%). Of those who expect acquisitions to increase, a sizeable majority (69%) expect to use a financing method to cover at least a portion of the cost.

Technology considerations lead reasons for future financing. A variety of factors were cited as reasons for financing additional equipment over the next 12 months. The most frequently cited factor was “technology advancements and/or obsolescence” (31%), followed by “increased prevalence of remote or hybrid work” (28%), “inflation” (26%), and “trajectory of pandemic and impact on demand or operations” (24%). This year’s survey suggest that equipment and software end-users are thinking more about inflation, the Fed’s response to it, and implications for their business strategy.

You May Also Like

Why this year will be the ‘Year of Fuel Efficiency’ regulations

Plus top takes on the CHIPS Bill, Repair Act and what this Congress can actually get done.

HDAD-EV-National-Regulations-1400

Increasing engine emissions regulations, aggressive sustainability targets and the path toward zero emissions that is being blazed by California all contribute to what Ann Wilson, senior vice president, government affairs, MEMA, dubbed the "Year of Fuel Efficiency" from a regulations and legislations standpoint, during her Heavy Duty Aftermarket Dialogue presentation.

FTR reports: Shipper’s conditions stabilize

Aside from a large increase in diesel prices during the month, shippers’ market conditions were more positive m/m.

Live Blog: Heavy Duty Aftermarket Dialogue 2023 (Updated!)

It’s the first trucking event of the year! Here’s what happened, as it happened.

Heavy-Duty-Aftermarket-Dialogue-2023
Amid loose market balance, carriers start tapping the brakes on capacity

Volumes softened to the lowest levels seen since March and April of 2020.

ACT-Research-For-hire-trucking-600
EV truck manufacturers to give updates at Work Truck Week 2023 

NTEA has released more information about EV-related sessions.  

Other Posts

Trucking market 2023 prediction: Plan for uncertainty

The latest from FTR’s State of Freight online press conference.

transprotation-market-generic-1400
November used truck average retail price negative Y/Y

The average retail used truck price has descended into negative y/y territory for the first time since August 2020.

Equipment Finance Industry confidence improves in December

Cautious optimism is the theme as we move into 2023.

Kenworth T680 Next Gen. truck awarded to military vet rookie driver

Professional truck driver Ashley Leiva of Noemi Trucking received the keys to a Kenworth T680 Next Generation truck.