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A new report shows 79% of businesses relied on financing for at least part of their equipment and software acquisitions in 2018, although there was a decline in equipment finance investment.

The report also showed leasing was the most common method used by businesses to acquire equipment and software (24%), followed by lines of credit (16%), secured loans (12%), and other forms of finance (3%).

These and other key findings are part of the 2019 Equipment Leasing & Finance Horizon Report, released by the Equipment Leasing & Finance Foundation. The report, commissioned by the Foundation and prepared by Keybridge, reveals that 50% of the $1.8 trillion spent on equipment in 2018 was financed, resulting in an estimated industry size of approximately $900 billion.

That figure, lower than that in last year's Horizon Report, is attributed to additional cash on hand, coupled with high interest rates, which drove down the propensity to finance among private businesses.

New Recession Monitor Shows Tipping Point

The report's new recession monitor shows that while the economy was mostly healthy last year, several key indicators have deteriorated in 2019. The monitor is a detailed analysis of recession risk comprised of a mix of 11 consumer and business-oriented indicators designed to anticipate a recession, even if a downturn has yet to fully materialize through the broader U.S. economy.

It also shows increasing evidence of an approaching growth pause or downturn. Although a recession is unlikely in the next six months, there are indicators showing a recession in the next year would not be surprising, and one in the next 12-24 months is more likely than not.

End-User Survey Examines Financing Propensity

The report draws on the results of a new end-user survey the Foundation conducted in July 2019 that was more than double the size of last year's survey. It provides the data to estimate the current size of the equipment finance industry, assess the propensity to finance private sector equipment investment for key equipment verticals, and forecast end-user plans to acquire and finance equipment over the next 12 months.

Lead Verticals Include Industrial, Ag, Medical

The report includes these other key findings:

  • Share of businesses using financing reaches new high. The end-user survey result showing that 79% of respondents used at least one form of financing to acquire equipment in 2018 is a substantial increase from the previous year’s result of 58%, and a return to levels observed in 2015 (78%) and 2011 (72%).
  • Equipment and software investment to remain steady. The majority of survey respondents expect the volume of their equipment and software acquisitions to remain the same over the next 12 months (56%), while the share of end-users who expect volume to increase (22%) roughly matches the share who expect it to decrease (21%). Of those who expect acquisitions to increase, the majority (59%) expect to use a financing method to cover at least a portion of the cost.
  • Office equipment leads among verticals most likely to be financed. Of the 12 equipment verticals for which a sufficient number of responses were collected, office equipment was most likely to be financed, with an estimated 65% of acquisition volume secured through a lease, loan, or line of credit. Other verticals with relatively high financing activity include other industrial equipment (59%), agriculture equipment (59%), communications equipment (58%), medical equipment (58%), and automobiles (57%). Materials handling equipment (41%) was the least likely to be financed in 2018 among the 12 verticals analyzed.

Top Five Take-Aways:

  • $900 Billion Industry - Total equipment and software investment continued to grow in 2018, with nominal investment expanding by 5.9% to $1.8 trillion. Approximately 50% of this investment (and 55% of private sector investment) was financed, resulting in an industry sizing estimate of about $900 billion.
  • Financing - 79% of respondents who acquired equipment or software in 2018 used at least one form of financing to do so (i.e., lease, secured loan, or line of credit).
  • Acquisitions - The majority of respondents expect the volume of their equipment and software acquisitions to remain the same over the next 12 months (56%).
  • Economic Indicators - As the longest expansion in the U.S. history continues, several economic indicators that have historically provided early warning of a downturn suggest that there may be a slowdown ahead.

See the full report here:

This document is designed to provide general information only and is not comprehensive nor is it legal, accounting, or tax advice. KeyBank does not make any warranties regarding the results obtained from the use of this information. Credit products are subject to credit approval, terms, conditions, and availability and subject to change. Key Equipment Finance is a division of KeyBank. Key.com is a federally registered service mark of KeyCorp.

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