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

PACCAR TX-12 Pro automated transmission introduced in Kenworth trucks

The new transmission will get its start in the Kenworth T680 and T880 trucks.

PACCAR-TX-12-PRO-automated-transmission

PACCAR has introduced the new TX-12 Pro automated transmission for Class 6-7 and light Class 8 vocational applications. The company says it builds upon the existing PACCAR TX-12 transmission.

Currently, the new transmission is available with select Kenworth Class 8 models, including the T680 and T880 equipped with the PACCAR MX-11 or PACCAR PX-9 engines. Later this year, the transmission will be available in Kenworth Class 6-8 medium duty models, including the T280, T380, and T480 equipped with the PACCAR PX-9 engine.

Class 8 orders strong in February

Even when seasonally adjusted, ACT says preliminary order numbers for February are up 5% over January.

ACT-Class-8-Feb-truck-orders
Kenworth delivers 15-liter natural gas-powered truck to UPS

The truck is equipped with the Cummins X15N, which Kenworth says will meet CARB and EPA Requirements for both 2024 and 2027.

Kenworth-delivers-CNG-truck-to-UPS
ACT Research: 2024 could see trucking recovery

Despite trucking demand remaining weak, ACT Research says imports and international data indicate positive trends in 2024.

ACT-for-hire-index-Jan-24
Navistar progressing toward autonomous hub-to-hub transport

Autonomous truck testing is underway, and the company expects customer pilots to be delivered later this year.

Navistar-Autonomous-partnership-Plus-international-truck

Other Posts

Scania reports 2023 growth in sales, progress on sustainability

The company says sales and performance are increasing as they move toward the goal of electrification, but there are challenges along the way.

SCANIA-Logo-vector
FTR Trucking Conditions Index falls in December

FTR says the drop was mostly due to higher capital cost and a deterioration in freight rates, a trend that could stretch into 2024.

FTR-TCI-december-2023
Fullbay: Repair shop sales and labor rates rose in 2023

A new report shows that counter sales and labor rates rose significantly in 2023 from the previous year.

Fullbay-TMC
ACT Research: Trailer orders dip as cancellations climb

Preliminary data for net trailer orders in January seems to follow a continued softening trend, according to ACT Research.

ACT-Research-Trailer-Net-Orders-down-Cancellations-up-Jan-2024