Leasing Delinquencies Remain at Historic Lows

Posted on October 11, 2017 by Laura Lam

Recent statistics from the Federal Reserve validate what leasing professionals have understood about their industry for years. The data reach back to the first quarter of 1985 and underscore the fact that, when it comes to delinquencies and charge-offs, equipment leasing remains one of the best performing sectors under the broader umbrella of commercial finance.

According to Bob Rinaldi, CEO of Commercial Industrial Finance, Inc., the most recent data on charge-offs and delinquencies offer no surprises. Rinaldi stated, “There’s nothing in this data that should alarm anyone in the industry…the data points are exactly where they should be. Everything here just makes common sense.”

The stability of leasing assets hangs on 3 attributes: the fact that lessors deal with essential use equipment, the value of the collateral and the short maturities with payment schedules that amortize to zero with no option to charge back up as is the case with lines of credit.

While the facts speak for themselves, Rinaldi says the Federal Reserve data serve to debunk the assumption that leasing is a riskier product offered by the commercial finance segment. He explains that because the data is compiled by the Federal Reserve, it is easier for bankers to believe.

“As far as where we are to date, if you look at the MLFI-25 – and you’ll note that delinquencies have picked up a bit,” said Rinaldi.  “But in the big picture, those increases are at historic lows, and delinquencies and losses are lower than I can remember them being in the last 20 years or so.”

Going forward, Rinaldi sees things holding steady for the leasing industry as a whole. Like his colleagues, he is optimistic but tempers this optimism until he sees some tangible results on the regulatory front. “I don’t see businesses throwing gas on the fire for growth…I think they’re still extraordinarily cautious with their capital spending.”

Source:  ELFA Magazine