Construction Sector Evolution Is Driving Changes in Equipment Finance
This article was originally published in the May/June 2025 issue of NEFA Newsline magazine.
The U.S. construction industry is set for continued expansion in 2025, with total construction spending projected to grow 4.1% to $2.24 trillion.1 While manufacturing-related projects are expected to outpace commercial activity, structural shifts within the industry are reshaping equipment finance trends and creating new opportunities for investment.
As stakeholders align around infrastructure modernization, sustainability goals, and supply chain challenges, the demand for construction equipment and the financial tools to support its acquisition is evolving rapidly. This transformation is influencing everything from underwriting criteria to deal structuring and portfolio strategy.
Industry Overview
As a capital intensive and cyclical sector, construction plays a pivotal role in the equipment finance ecosystem. Companies operating in this space regularly rely on financing including leases, loans, and structured purchase agreements to manage cash flow and acquire essential assets. Currently, construction equipment represents approximately 16.5% of all new business volume in the U.S. equipment finance market.2
This figure reflects both the scale of the construction sector and the increasing complexity of asset needs. From earthmoving equipment and cranes to concrete batch plants and directional drills, contractors depend on timely access to high-value equipment that may only be needed for a portion of a project’s lifecycle. Financing provides the flexibility to manage these assets more efficiently.
Since the pandemic, banks have reentered the market with vigor. Lending spreads have returned to pre-COVID-19 levels for both investment grade and middle market borrowers. While maintaining prudent credit standards, many banks are increasingly comfortable financing construction-related assets and accepting tighter yields in exchange for stronger credit profiles.
Concurrently, disruptions in the over-the-road (OTR) transportation sector have prompted financial institutions to diversify portfolios by boosting exposure to construction assets. The freight market has faced persistent headwinds, including soft spot rates, excess capacity, and declining truck values that are all factors in making construction equipment an attractive alternative with more stable collateral characteristics. As a result, many lenders are now taking on larger hold positions in this sector, sometimes collaborating with syndication partners to broaden exposure across asset classes.
Independent, equity backed finance companies are also expanding into the lower middle market and focusing on BB- to CCC+ rated borrowers. These firms deliver customized solutions, including down payment requirements or unencumbered collateral structures, offering liquidity to an underserved segment of the market, which. is supporting broader growth across the equipment finance space. Their nimble credit approach allows them to serve contractors with unique project cycles, limited financial history, or seasonally fluctuating cash flow, which can often challenge traditional credit models.
Geopolitical and Economic Influences
Macroeconomic pressures such as tariffs, inflation, and fluctuating interest rates continue to shape the outlook for construction and manufacturing. While a general economic slowdown may be on the horizon, a sharp decline in construction activity is not anticipated. Stakeholders remain cautiously optimistic, balancing preparedness for headwinds with a focus on long-term growth.
Federal infrastructure spending continues to be a stabilizing force. State and local governments are also ramping up budgets for water, transportation, and broadband projects that provide sustained tailwinds for the sector. At the same time, high input costs, including steel, copper, and diesel remain a concern for project budgets and contractor margins. This is pushing some developers to delay discretionary projects while others are seeking alternative construction methods or phased development schedules.
On the manufacturing front, original equipment manufacturers (OEMs) are refining pricing strategies as order backlogs normalize to pre-pandemic levels, typically 90 to 180 days across most categories, down from the 12- to 18-month delays seen during and post pandemic. Although Q1 2025 showed a modest year-over-year dip in sales, robust backlogs indicate a positive outlook for the remainder of the year.
Challenges like labor shortages and rising material costs continue to affect project budgets, schedules, and financing needs. A shortage of skilled workers, especially heavy equipment operators and diesel technicians, is forcing many contractors to reevaluate their fleet strategies investing in newer, more efficient equipment that can help offset reduced labor productivity.
Supply chain disruptions and extended equipment lead times over the past two years fueled demand for used equipment and bulk purchasing. Many companies turned to the secondary market, even overpaying for key assets to avoid project delays. However, renewed geopolitical instability has fostered a more conservative procurement approach with order volumes down 10% to 15% year over year. Many contractors are now returning to normalized capital planning cycles, and finance providers are responding with more forward-looking structures that accommodate longer delivery lead times and staged payment schedules.
As equipment accumulates incremental usage with more hours or miles, its appeal and resale value typically diminish, particularly amid the growing saturation of the secondary market. This market has expanded significantly driven in large part by heightened activity in the construction and manufacturing sectors where sustained investments in infrastructure and renewable energy continue to spur demand.
Key drivers behind the increased uptake of used equipment include its relative cost efficiency, reduction in depreciation, and the strategic advantage organizations now have in accelerating technology acquisition cycles. Today, lessees are increasingly choosing not to exercise end-of-term purchase options, which, in conjunction with an uptick in delinquencies, has further augmented the volume of used inventory. As a result, the urgency that once underscored secondary market transactions, especially at the height of the pandemic, has notably subsided.
Late-model, low-hour construction equipment remains in strong demand as these assets often represent a compelling value proposition for dealers, OEMs and businesses seeking high-quality, pre-owned machinery. In the first quarter, used equipment inventories increased driven by the return of rental and leased units as well as the strategic disposition of underutilized models by dealers aiming to refresh their fleets.
Growth Opportunities in Equipment Finance
The $1 trillion U.S. equipment finance industry comprising bank affiliated lenders, independents, and captives offers a wide range of financial solutions. In the construction sector, several trends are shaping new opportunities for capital deployment:
- Infrastructure Investment: Government-backed programs such as the $1 trillion Investing in America initiative are stimulating demand across sectors, including clean energy, semiconductor manufacturing, and industrial development. From electric vehicle (EV) charging networks and rail upgrades to battery manufacturing facilities, these projects require specialized and large-scale equipment fleets creating opportunities for lenders with industry knowledge and flexible capital solutions.
- Simplified Financing: Lenders are increasingly offering application-only approvals for transactions up to $1 million. This streamlined approach helps meet ongoing demand, especially as businesses seek flexible financing to support margin preservation. For contractors bidding on lump-sum or fast-turn projects, the ability to quickly finance assets without burdensome documentation can be a competitive differentiator.
- Expansion into New Markets: Financial institutions are targeting sectors like oil and gas, mining, and other industries heavily reliant on construction equipment. Independent lenders are also pursuing complex project finance structures and diversifying their portfolios and capital allocations.
- Investment in Automation: The construction industry is also experiencing a significant surge in investment in automation technologies, reflecting a broader push toward modernization and efficiency. Advanced tools such as drones, robotics, and telematics are becoming increasingly prevalent on job sites, enhancing productivity, safety, and data-driven decision-making.
Outlook
Construction continues to be a core strategic focus within the equipment finance industry, driven by the intrinsic utility of the underlying assets. As capital shifts away from more volatile sectors like transportation, construction is emerging as a preferred arena for investment and stable returns.
Looking forward, digital adoption, including electronic documentation, virtual inspections, and online applications, will further enhance the efficiency and scalability of construction equipment finance. Lenders who invest in digital platforms will be better positioned to serve growing contractors who expect fast, mobile-friendly solutions.
Despite continued challenges, such as elevated interest rates and labor constraints, sustained infrastructure investment and industrial activity are expected to underpin moderate, steady growth. Lenders with the ability to underwrite complex credits, structure flexible deals, and understand the nuances of construction projects will be essential for scaling in this high-demand market.