US businesses and government agencies will finance more than $742 billion in equipment acquisitions in 2013, according to the US Equipment Finance Market Study 2012-2013 released by the Equipment Leasing & Finance Foundation.
The study, conducted by IHS, provides a look at the size and expected growth of the US equipment finance market. According to the study, the equipment finance sector has emerged from the Great Recession with finance volumes at an all-time high, as a result of double-digit growth in equipment investment and a favorable interest rate environment.
However, equipment finance volumes are expected to expand at a more moderate pace over the next 12 to 18 months as equipment investment growth remains constrained by uncertainties at home and abroad. Companies are expected to remain cautious about taking on risks associated with large capital investments until after making tax and regulatory decisions impacting short- and long-term fiscal stability.
Highlights from the study include:
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In 2012, equipment finance volume returned to pre-recession levels, with the 2012 estimate for the equipment finance market expected to reach $725 billion. The market is expected to expand over the next two years; however, the growth rate is expected to slow.
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The equipment finance sector is a significant contributor to capital formation in the US economy. Of the projected $1.3 trillion invested in plant, equipment and software in 2013, 55%, or $742 billion, of that investment is expected to be financed through loans, leases, and lines of credit. In 2014, the market size is projected to grow to $778 billion.
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Seventy-two percent of companies use some form of financing when acquiring equipment, including loans, leases, and lines of credit (excluding credit cards). Companies with less than $1 million in revenues use financing in 49% of their equipment acquisitions, while companies with revenues between $25 million and $100 million use financing in 86% of their acquisitions.
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Companies with sales between $25 million and $100 million doubled their share of financing volume from 2006 — when the foundation's first market-sizing study was conducted — to 2011. Companies with fewer than 51 employees also doubled their share equipment acquisition via financing.
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Cash as a method of purchasing declined for large companies from 2007 to 2012 as larger companies enjoyed greater access to credit markets. In the current low-interest-rate environment, financing equipment acquisitions is attractive.
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Corporate perceptions of the economic outlook are the primary driver behind equipment investment decisions. When presented with a list of potential factors that will drive future investment spending, companies surveyed by the foundation overwhelmingly chose “general economic conditions.”