(Reuters) - U.S. companies stepped up borrowing to buy equipment in March, mainly to replace aging goods rather than for expansion, as a sluggish economic recovery puts a lid on new capital spending, the Equipment Leasing and Finance Association said on Monday.
Companies signed up for $6.8 billion in loans, leases and lines of credit in March, 10 percent more than $6.2 billion a year earlier, and 36 percent more than February’s $5.0 billion, ELFA said.
Business borrowing has been growing at “recovery-like” rates for more than two years and the pace will likely be tempered without more significant economic growth, the group’s Chief Executive William Sutton said in an interview.
“High oil prices, uncertainty in the euro zone, a seeming slowdown in China and other emerging markets, and regulatory uncertainty all continue to keep GDP growth slower,” said Sutton.
“The one thing that would stimulate capital expenditure and business borrowing would be a heat-up of the economy, and right now all of these different headwinds are flying right in the face of a high rate of growth,” he added.
New business loan volume has increased by 17 percent during the first quarter, ELFA said.
With Gross Domestic Product growth stifled by these factors, “increases in originations of the magnitude we have experienced during the past two to three years in a recovery mode are probably not sustainable,” Sutton said.
ELFA, a trade association with over 550 members which reports economic activity for the $628 billion equipment finance sector, said overall credit quality measures are stable near pre-recession levels.
The group said 2.8 percent of borrowers were late by more than 30 days on their debts, up from 2.5 percent in February and from a pre-recession low of 1.9 percent in January. This late-payment rate was nonetheless 20 percent lower than in March 2011, and within the typical range before the recession.
Charge-offs, which reflect loans unlikely to be repaid, edged up to 0.7 percent in March from a pre-recession low of 0.5 percent the prior month, but were down 46 percent from a year earlier.
The charge-off rate reached 3 percent as recently as 2009 and has fallen steadily as companies cleaned up portfolios of poorly performing loans, ELFA said.
Credit approvals dipped to 78 percent in March from 79 percent the previous month. Approvals have never been above 80 percent, Sutton noted.
More than two-thirds of participating organizations said they submitted more transactions for approval, up from 62 percent in February.
ELFA’s monthly index is based on a survey of 25 member organizations, including Bank of America Corp, and the financing affiliates or subsidiaries of Canon Inc, Caterpillar Inc, Dell Inc, Siemens AG and Verizon Communications Inc.
Separately, the Equipment Leasing & Finance Foundation, ELFA’s non-profit affiliate, said on Friday said its confidence index rose for the fourth straight month to 62.1 in April from 61.7 in March.
The sentiment gauge has been climbing since hitting a recent low of 47.6 last September and is the highest since 63.2 in May 2011.
Earlier in April the foundation released an economic outlook that forecast real U.S. GDP growth of 2.3 percent in 2012, down from the 2.4 percent it had forecast in its prior quarterly outlook in December.
Reporting by Lynn Adler; Editing by Phil Berlowitz