Peanut butter and jelly. Red wine and chocolate. Ice cold beer and … cleaning supplies?
Not only do the last two items not go together, in some states, they can’t even be transported together. That was the case in Texas before empty store shelves early in the pandemic spurred Texas Governor Greg Abbott to waive state laws that prohibited alcohol industry trucks from delivering supplies to grocery stores.
Changes in state and local laws like these, along with changing consumer expectations over the past year, are transforming the ways many companies and government agencies do business. That could be a boon to the companies that typically finance about half of the nearly $2 trillion annual capital spend on equipment, vehicles, IT systems and software by U.S. businesses and government agencies.
New business volume in March was up $9.3 billion, or 4%, from March 2020—right as the coronavirus shut down the U.S. economy. That’s according to the Equipment Leasing and Finance Association (ELFA), whose Monthly Leasing and Finance Index reports activity from 25 companies representing a cross-section of the equipment finance sector.
Jill McKean-Bilby, president of BOK Financial Equipment Finance, Inc., said the increase could be a positive indicator of where the economy is going. Typically, companies finance new equipment in the fourth quarter of the year to maximize the tax depreciation they can claim on their investments, she said.
“We typically do 60-75% of our annual business in the last quarter of the year—and typically 50% in just the last two weeks,” McKean-Bilby said.
This year, the division is off to a flying start with one of the best pipelines of new business the bankers have ever seen thanks—in part—to changes prompted by the pandemic.
The pandemic has spurred demand for equipment and vehicles in other areas as well. An increase in new home construction requires more vehicles to transport goods and building materials. Lingering concerns about close quarters on commercial airplanes are driving interest in corporate aircraft purchases. The increased demand for telehealth services in many areas of healthcare will trigger increased spending on IT systems.
Some industries struggled in 2020, not from low demand but because of supply chain and other disruptions, according to Tim Kubiski, senior vice president, BOK Financial Equipment Finance. “Inventories on everything from machine tools to construction equipment were low throughout 2020 because a number of manufacturers pivoted to producing badly needed healthcare equipment.”
McKean-Bilby added, “One of my clients experienced delays in installing a piece of equipment from Germany—not because the equipment itself was delayed—but because the installers weren’t allowed to come into the U.S.”
Bright outlook for 2021
ELFA President Ralph Petta optimistically points to “an economic tailwind that is manifesting itself in an improving labor market, a continued low interest-rate environment, a strong corporate earnings season, and high business confidence that is creating demand for investment in commercial equipment.”
The Biden Administration’s proposed $2 trillion American Jobs Plan could pave the way for an even higher demand for many categories of equipment.
“Some municipalities are putting projects on hold as they reallocate tight budgets,” said Kubiski. “However, the infrastructure bill could mean a significant investment in busses, airports, ports, hospitals, community colleges, public schools, etc., all of which could be funded through municipal leases. The municipalities we’re talking to are keeping a close eye on where this goes.”
BOK Financial Equipment Finance, Inc. is a subsidiary company of BOKF, NA.