The construction industry is a key measure of overall economic strength and can provide unique insight into the financial health of the country overall.
With that in mind, FinTechs have begun to pivot towards construction firms in an effort to bolster its financial health. Earlier this year AvidXchange and GCPay launched a partnership to provide construction companies with accounts payable automation solutions. Another firm, lienwaivers.io, has designed a solution to bridge construction businesses with faster payment capabilities for employee and contractor payouts.
The current economic and political climate is likely to keep FinTech’s spotlight on the construction space for a bit longer.
U.S. President Donald Trump is readying the release of is infrastructure plan, with a budget of up to $1 trillion or more that could funnel through infrastructure projects. It would be a massive boost to the construction industry, and Trump’s plans are already having an effect on the sector’s cash management practices, some analysts said, opening doors for both traditional and alternative equipment financing companies.
New data from the Equipment Leasing and Finance Association offers insight into the equipment financing sector — which holds a strong presence in the construction space — and how shifts in economic policy will impact these players.
The Equipment Leasing and Finance Association said nearly 8 in 10 SMEs in the country depend on equipment financing, with current market conditions — including rising SME optimism and growing capital expenditure plans — promoting the use of the kind of loan.
“For small businesses that want to take advantage of new opportunities, equipment financing offers flexible, budget-friendly options,” said ELFA President and CEO Ralph Petta in a statement during National Small Business Week. “Equipment finance is on the rise in 2017, fueled by a steadily growing economy.”
According to the association, equipment financing is key to cash flow management while allowing SMEs to stay up-to-date with technology they need to be competitive.
The ELFA released its Monthly Leasing and Finance Index that explored 25 equipment financing businesses. Collectively, the ELFA said, these firms represent a “cross-section of the $1 trillion equipment finance sector.”
Overall, new business volume for these firms topped $8.9 billion in March a 10 percent year-over-year increase, with month-to-month volume up by 51 percent.
The index found that business borrowers of equipment financiers are faring pretty well, too, with receivables more than 30 days past due down to 1.4 percent from 1.5 percent in February. Application approval rates were at 74.5 percent, a bit lower than 74.8 percent in February.
“Responding companies report surprisingly strong end-of-quarter volume, despite a sluggish first-quarter economic growth projection by the Atlanta Federal Reserve Bank,” reflected Petta. “The central bank’s recent rate hike may, in part, be responsible for spike in equipment demand as businesses seek to lock in fixed rate financing ahead of steadily increasing interest costs. Hopefully, this growth trend takes hold and continues into spring and summer months.”
Daryn Lecy, VP of operations at the Equipment Finance Division of Stearns Bank NA, also reflected on the ELFA’s latest findings.
“Year-to-date, respondents are signaling some signs of a slightly tougher credit environment with higher year-over-year delinquencies and charge-offs combined with lower credit approval percentages,” said Lecy. “This more than likely demonstrates a return to historic norms relative to the record lows we experienced in recent years rather than a deterioration of credits as a whole.
“This increased overall funding volume and contagious optimism surrounding the construction industry presents some real excitement throughout 2017 for us at Stearns Bank,” the executive continued. “In addition, future infrastructure spending, paired with a possibility of less regulation, presents more reasons for industry enthusiasm throughout the year ahead.”