How Covid-19 have changed the Equipment Finance Industry

 

The year 2020 will go down in history as a memorable year for many reasons, the most significant being that it was the year of the pandemic. In less than five months, an unknown virus swept across all the six habitable continents of the world, infecting millions of people and crashing various economies along the way. The disastrous effects of the virus are noticeable in all aspects of human lives. Schools were closed; businesses shut down, demand and supply chains were disrupted all over the world. While most countries are gradually opening up their economies and accepting the coronavirus as a new norm, the effects remain very much evident. Like most sectors or the economy, the equipment financing industry was not spared from these adverse effects.

Although The Initial lockdown measures to contain the virus did not prove a complete success, it affected different industries as many businesses had to stop operations or reduce their capacity to comply with health standards.  The result was that many businesses were unable to meet financial obligations, and their demand for equipment was also reduced. Thus, the COVID 19 pandemic affected the equipment financing industry negatively. In a survey conducted in April to determine the opinions of business executives in the industry, most were not confident about the positive expectations in months to come. In fact, there was a fall from 46.0% in March to 22.6% in April for the Monthly confidence index, with many having negative expectations.

However, the confidence level has since risen in the months that followed with a 45.8% confidence index level for June. This shows that the industry is rebounding, and there is a positive outlook for the months to come. Despite the rise in confidence levels, the pandemic has some permanent effects on the industry.

Before the pandemic, the idea of defaulting on a loan was not just frowned upon; it was unacceptable and usually carried severe consequences for the defaulting party, such as repossession of the equipment. However, the economic downturn caused by the pandemic made it impossible for many businesses to meet the deadline for payments, thus leading to many companies offering deferral options for their client. With many equipment financing companies expecting the default rate to be higher this year, payment deferral would help mitigate the negative impacts of the pandemic.

Despite the pandemic, there is an overall positive outlook, which is seen in the fact that the majority of equipment finance companies have managed to retain all their workers. It is expected that most businesses will need loans and other finance options for capital expenditure in the coming month. Given the current economic situation and the fact that most businesses are in precarious financial positions, the lease finance option has become more prevalent. Businesses that usually don’t lease equipment in the past are now embracing this solution to handle their equipment needs while maintaining financial stability. This is expected to continue even when the pandemic is over.

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