Alta’s 2024 Insights on the Trends Shaping the Equipment Finance Industry

January 16, 2024

Equipment finance companies entered 2023 with a mix of confidence and trepidation. Many companies were bullish at the end of 2022, with some reporting record business growth as end-user customers accelerated their equipment purchases before inflation increased the underlying cost of the equipment. But with inflation remaining stubbornly high and predictions of a looming recession coming from almost every direction—with little consensus about its timing or severity—there was an underlying tone of uncertainty.

In February, we began noticing a shift in focus away from pure growth, and toward increasing returns. Then in March, the dramatic failures of Silicon Valley Bank and Signature Bank showed us what a modern-day bank run looks like, as depositors acting on a flow of real-time headlines moved massive amounts of money with just the touch of a screen. The underlying cause of these failures was largely self-inflicted, either due to a concentration in crypto based assets or heavy investment in Treasury Bonds whose values plummeted as the Federal Reserve continued to raise interest rates.

The failures had a chilling effect across much of the U.S. banking industry that would last for the rest of 2023, causing banks to take steps to strictly manage expenses, reduce risk and prioritize deposit retention. With limited liquidity and capital to deploy, many banks shifted their strategies to focus on their core business and depository relationships. Toward the end of 2023, we even saw evidence of banks de-emphasizing their equipment financing divisions, reducing them from a material contributor to a simple product offering, if not exiting this market. Syndication markets either closed altogether or otherwise increased their pricing and credit approval criteria to limit the use of precious capital for non- core purposes. This put a damper on M&A activity, as banks had less capital available for acquisitions and limited appetite for acquiring or expanding an existing equipment-finance platform.

In contrast, the story was not the same for independent and captive equipment finance companies, who have benefitted from the retrenchment of the banks from equipment financing. Indeed, many independents closed out 2023 with record levels of business volume benefitting creditworthy borrowers abandoned by the banks or “Fallen Angels.” As 2024 brings a new set of challenges and opportunities, we expect to continue to see this shift of independents and captives taking on greater volumes of equipment financing business as a result of banks’ ongoing reevaluation of their presence in equipment finance.

Alta predicts we will see more of this fallout in 2024, and the Monitor100 rankings could look quite different next year, with lower overall industry volumes, and banks falling in the rankings while independents and captives rise as they welcome and support those abandoned bank clients. Against this backdrop, we examine the major headwinds and tailwinds that we believe will impact the equipment leasing and finance industry in 2024.

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