Highlights from the 2021 ELFA Credit Manager Survey

Wondering about the current and future state of credit and collections within the equipment finance industry? ELFA’s 10th Annual Credit Manager Survey provides key insights into credit and reflects the thoughts and perspectives of executive leadership and credit personnel within the industry.  The results are based on feedback from 211 ELFA-member credit, collections and executive management leaders.

The results were presented via an ELFA Wednesday Webinar on Aug. 25 by the members of the 2021 Survey Committee, including Cecile Latouche of Atalaya Leasing, Chris Maudlin of Wintrust Specialty Finance, Scott McCann of Wells Fargo Equipment Finance, Patrick Moore of Equifax, Michael (Mic) Mount of US Bank Equipment Finance, and Kevin P. Prykull of PNC Equipment Finance - retired.

• Credit Process: Credit is more involved in all strategy decisions in this year’s results, including pricing and volume matters. Increased use of a formal prescreen processes continues, especially for Banks. Assigning formal LGDs to asset classes continues to gain prevalence.

• Credit Scoring: Some pullback in threshold approval levels are noted, especially in the $500K and above category. However, a general increase in the threshold level is noted over the last five years of the survey.

• Credit Turnaround Time: Banks have slowed credit decisioning times, while Independents and especially Captives have improved.

• Collateral Values: Views on future collateral values appear to be informed by where you sit. Captives are more optimistic and Banks less optimistic.

• Regulation: Considerable external regulation remains for Banks, albeit decreasing over the last four years, with modest levels for Captives and Independents. Internal regulation is relatively high for all (Banks, Captives, and Independents).

• Credit Policy: Despite expectations, few “permanent” changes were made to Credit Policies due to Covid. However, significant increases in “Controls” were noted and many remain in place. The primary reason for policy changes was to improve portfolio results.
• Deferrals: Deferrals due to Covid were significant, approaching 7.5% of earning assets. For smaller firms and portfolios, the level approached nearly 30%!

• Modifications: Requests from customers to modify credit or documentation requirements have eased over the last two years but are still at elevated levels from prior years.

• Default Rates: There is obvious deterioration in 2020. Continued improvement is forecast in most sectors going forward.

• Booking Volume: Expectations rose significantly for all groups and categories.

• Approval Rates: Approval rates are down for virtually all survey participants, but an uptick is noted as of late. Approval rates are now back to pre-Pandemic levels.

• Unfavorable Industries do exist:

o Oil & Gas
o Retail
o Metals & Mining
o Services (restaurants, hotels, etc.)
o Respondents are mixed on Transportation.

• Lessons Learned: Respondents shared top lessons learned from the pandemic, including:

o Stay disciplined and diversified.
o Cash is “KING.”
o Financing of essential equipment is still a good idea.
o Having flexible and resourceful staffing is essential.

What’s Next?

Respondents generally indicated that the economy and the equipment finance industry are coming full circle. They are seeing an increase in business Volume and Originations and improvement in Credit Quality. In addition, industry confidence is rebounding. Equipment finance remains an integral part of the economy, and infrastructure and rebuilding of America post-Pandemic are positive factors.

When asked “What keeps you up at night?” respondents shared the following chief concerns moving forward: Inflation; government-related issues: politics, end of stimulus and levels of national debt; competitors’ risk appetites; fraud; and inflated equipment values.

Are we ready for the unexpected events and the inevitable challenges to the credit cycle? Are we managing our portfolios accordingly? Only time will tell! 

As Richard Dawson used to remark on Family Feud, “And the survey says!” Stay tuned for next year’s survey. If you would like to become active in the 2022 survey, please contact Heather Staverman at ELFA ([email protected]) or Kevin P. Prykull ([email protected]) for details. Also, save the date for the 2022 Credit & Collections Conference, June 6 – 8 at the Hilton Palacio Del Rio in San Antonio, Texas.

More Information

Access a recording and slide deck from the ELFA Credit Managers Survey webinar—as well as the Collections Managers Survey Webinar—via the ELFA website at https://www.elfaonline.org/events/elearning/web-seminars.