In February, the equipment finance sector witnessed a resurgence following recent fluctuations, as reported by the Equipment Leasing and Finance Association (ELFA). Adjusted for seasonal variations, new business volume reached $9.7 billion, marking an increase of 3.7% compared to January. However, year-to-date figures show a decline of 3.7% relative to the same period in 2024, with non-seasonally adjusted February data reflecting a 7.4% drop year-over-year. The report highlights a return to stability in demand for equipment financing after several months of volatility driven by shifts in bank financing activity. While financial conditions have slightly weakened due to rising losses, key metrics such as overdue accounts and application rates remain favorable. Industry leaders express cautious optimism about the year ahead, contingent on avoiding a recession.
Data from ELFA indicates that February saw a notable rebound in new business volumes, aligning closely with levels observed in previous February reports over the past few years. Growth was particularly evident in banks and captives, where month-over-month increases were recorded at 0.9% and 15.0%, respectively. Conversely, independents experienced a 6.4% decline in financing activity, despite showing gains over the last five years. Independents now account for 20% of all new business activity, up from approximately 16% between 2017 and 2019. Captive entities also expanded their share by roughly 2.25 percentage points, while bank activity decreased significantly by nearly 7.5 percentage points.
The pace of job losses within the sector slowed in February, reversing a trend that had accelerated over the preceding three months. Despite this slowdown, employment in the sector remains down by 2.4% over the past year, largely attributed to a 6.4% contraction in jobs at captives. Banks contributed to this decline with a 1.6% reduction in headcount over the last year, whereas independents experienced a modest 1.0% rise in employment. Credit approval rates have stabilized around 75%, although there has been a slight decrease of half a percentage point in the average rate. Nonetheless, this figure remains higher than levels observed at the end of 2024.
Financial conditions exhibited some weakening, with aging receivables over 30 days dropping to 2.0%, representing a decrease of 0.2 percentage points. Charge-offs, however, increased to 0.55%, reaching one of the highest levels seen in the last two years. This uptick was primarily driven by higher charge-offs at both independents and banks. Although the average loss rate rose, the loss rate for smaller transactions improved after a significant jump in the previous month. KeyBank executives expressed optimism regarding credit quality and capital availability, noting strong client demand for equipment financing compared to the same period last year.
Industry confidence took a slight dip, reflected in the Equipment Leasing & Finance Foundation’s Monthly Confidence Index, which fell to 58.1 in March. Executives demonstrated increasing caution concerning business conditions over the next four months. ELFA's CapEx Finance Index serves as a timely indicator of commercial equipment financing in the U.S., offering insights ahead of the Commerce Department’s durable goods report through surveys conducted among industry participants across various sectors.
As the equipment finance sector navigates ongoing economic challenges, stakeholders remain watchful of potential impacts stemming from tariffs and broader economic uncertainties. Despite these concerns, the latest data suggests resilience in core business activities, supported by robust credit quality and steady demand for earning assets. Looking ahead, maintaining vigilance will be crucial to ensuring sustained growth amidst shifting market dynamics.