US Business Equipment Borrowings Plunge 7% Year-over-Year in February

The latest report from the Equipment Leasing and Finance Association (ELFA) reveals a significant 7% year-over-year decline in US business equipment borrowings for February 2025. This downturn, coupled with a 15% sequential decrease in new loans, leases, and lines of credit, signals a potential slowdown in capital expenditures by businesses. The implications of this trend are far-reaching, particularly for sectors heavily reliant on equipment financing, such as manufacturing and construction.



The decline in equipment borrowings is a multifaceted issue, influenced by several economic factors. Economic uncertainty and inflation fatigue are significant contributors, as businesses grapple with rising costs and financial stress. High interest rates, which make borrowing more expensive, are also a key factor. The ELFA's report indicates that while credit quality is improving, with delinquencies returning to normal levels and charge-offs moving in a positive direction, credit approval rates remain stable but not increasing. This stability, while reassuring, does not offset the broader economic headwinds.

The manufacturing sector, which has been experiencing a softening trend, is particularly vulnerable to this decline. The ISM’s Manufacturing PMI, a key indicator of sector performance, has declined for three consecutive months after briefly entering expansionary territory in March 2025. This decline in borrowing could further exacerbate the hesitancy of manufacturers to invest in capital expenditures and inventories, given the current business environment.

Similarly, the construction sector, which relies heavily on equipment financing, could also be adversely affected. The decline in equipment borrowings could lead to a reduction in construction projects, as firms may struggle to acquire the necessary equipment to complete their work. This could result in a slowdown in infrastructure development and housing construction, which are critical drivers of economic growth.

However, it is important to note that the decline in equipment borrowings could also be a temporary phenomenon. The ELFA's confidence index for March 2025 stood at 55.2, up from 51.7 for February and at its highest level since April 2022. A reading above 50 indicates a positive business outlook, suggesting that businesses may be optimistic about the future and could increase their equipment borrowings in the coming months.

In conclusion, the current decline in equipment borrowings has significant implications for the overall economic outlook in the US, particularly for sectors heavily reliant on equipment financing such as manufacturing and construction. However, the decline could also be a temporary phenomenon, and businesses may increase their equipment borrowings in the coming months as the economic outlook improves. Investors should closely monitor these trends and consider the potential impact on their portfolios, particularly those with significant exposure to equipment financing and related sectors.