Specializing in construction and materials handling appear to be helping U.S. independent finance companies grow their market share against banks and manufacturer-owned captive finance firms. The independents have also been targeting corporate aviation, healthcare, IT, office machines and trucks and trailers.
A new study, Independents: Banking on the Non-Banks, released by the Equipment Leasing & Finance Foundation, examines the domain of independents and how they create value and differentiate themselves. The in-depth study, commissioned by the Foundation, and released in February 2019 was prepared by FIC Advisors, Inc.
More than 20 independent finance company executives were interviewed for this examination of how independents have built their current success and are preparing for future events. The study offers details concerning ways in which successful players identify the key issues that can impact their performance, engage their personnel teams in addressing them and make informed decisions. All at the same the time maintaining the flexibility to change their course as necessary. It also includes case examples with takeaways for independents and the larger industry to consider.
Here are the highlights:
Independents had once dominated the equipment finance market, but lost share and volume to banks as a result of the economic downturn and banks’ capital availability to enter and expand in the market, including by buying independents. But independents have responded by focusing on customer service, on smaller deals (below $250,000) and specialized, high-attention and/or lower-volume sectors;
Independents have a potential financing market of between $50.6 billion-$176 billion. The range is based upon current market share as developed by two different but related sources, the Equipment Leasing and Finance Association’s annual survey of its members (4.6 per cent) and a separate survey of end users (16 per cent). Applying those percentages to the total market numbers accounts for the wide dollar range, but even $50.6 billion provides significant market potential;
Market share numbers for independents show them capturing in total a stable single-digit share of new business volume (NBV). While banks have been capturing increased NBV, independent year-to-year growth outpaces both banks and captives;
Independents continually review their markets and enter and exit them based on their profitability vis-à-vis their bank and captive finance competitors;
Independents have shown strong performance related both to yield and returns on equity and assets. Independents’ metrics portray a segment that may have smaller market share than 20 years ago but which generates consistently higher yields and returns than banks or captives; and
Independents’ success relies on strong corporate cultures that stress accountability, adaptability, balance, constant communication, continual innovation, employee training and internal organization “muscle building”, responsibility and restlessness (i.e. not being satisfied with current status). These factors are helping them to attract and retain high-qualified and entrepreneurial Millennials to propel their growth.
Download the full study at http://bit.ly/ELFF2019Independents. All Foundation studies are available for free download from the Foundation’s online library at http://store.leasefoundation.org/.
“This study provides great insights about an industry segment that is often not uniformly or easily characterized,” said Thomas Ware, Foundation research committee chair and senior vice president, analytics and product development, PayNet. Inc.