The equipment finance industry is seeing a negative impact on business conditions due to recent bank failures and their attendant liquidity issues, according to the results of a new survey released by the Equipment Leasing & Finance Foundation (Foundation). The survey, “Impact of Bank Liquidity on the Equipment Finance Industry,” reveals that despite the majority of lenders (56 percent) expecting originations to increase in 2023, substantially more banks and captives feel that the impact of recent events was negative rather than positive for them. Independents, however, believe they will have more opportunities if banks tighten or restrict their small business lending activities. The survey was developed to track the immediate and long-term impact of the recent bank liquidity crises on equipment finance companies on a variety of factors.

Key Findings

Among the survey highlights, which break out the results by lender type, are:

• Overall impact. As a result of the recent liquidity crisis, 44 percent of banks expect a negative impact, 38 percent expect no impact, and 19 percent expect a positive impact. 37 percent of captives expect a negative impact and 63 percent expect no impact, while independents are equally split on positive, negative and no impact from liquidity issues.
• Deposits. 58 percent of bank respondents believe negative changes in deposit levels would reduce new transaction and funding activity. An equal number of respondents expect deposits at their banks to increase (36 percent) or remain the same (36 percent).
• Originations. 52 percent of banks, 70 percent of independents, and 33 percent of captives expect originations volume to increase this year.
• Cost of capital. All types of lenders expect their cost of capital to increase: 94 percent of banks, 79 percent of independents, and 67 percent of captives.
• Spreads. 63 percent of banks and 39 percent of independents believe their margin requirement or credit spread will increase, while only 25 percent of captives believe so.
• Duration of liquidity stress. 33 percent of all respondents said that liquidity stress is not currently an issue, 29 percent said it will be an issue for less than one year, 19 percent said it will be an issue for more than a year, 14 percent said less than six months, and 4 percent said less than three months.
• Syndication markets. 58 percent of Banks said they would reduce their purchasing, but only 15 percent said they would reduce their selling, likely foretelling a market imbalance with more sellers than buyers, though the difference was less extreme when all lender types are counted.

“This survey makes clear that almost all independents expect to benefit by recent events, while most banks, particularly smaller banks, and captives, expect a negative impact, at least for the short-to-medium term,” said Tom Ware, Foundation Research Committee Chair. “It also demonstrates the Foundation’s continued dedication to its mission to provide relevant, future-focused research data for the betterment of the equipment finance industry.”

Survey responses were collected from 78 equipment finance company executives during April 2023. Of the responses, 33 were from banks, 33 from independents, and 12 from captives.

Read the full survey results at https://www.leasefoundation.org/industry-resources/liquidity-survey/.