Something’s simmering, say our credit and collections experts. There’s no call for alarm yet, but neither is it time to get comfortable.
“It’s stable right now but with pockets of concern,” says Sarah Palmer, DLL’s U.S. Head of Credit, Anti-Money Laundering, and Commercial Finance.
“Overall, credit performance in equipment finance is still holding up well, but we’re starting to see some softening at the margins,” says Dana Pace, Senior Vice President, Director of Operations and Asset Resolution, PNC Equipment Finance.
“The industry is beginning to show signs of stress,” says Dan Goderis, Director, Portfolio Management, GreatAmerica Financial Services.
Underlying stresses are mounting, agrees Melissa Fisher, Chief Risk Officer at MAZO Capital Solutions. “For equipment finance providers, this translates into a key reality: portfolio performance today may not fully reflect forward risk. Lagging indicators such as delinquency and loss rates remain benign—until they don’t,” says Fisher.
While some are seeing concerns on the horizon, Jackie Kirk, Vice President of Collections & Asset Management, Western Equipment Finance, says they are more imminent.
Collections are volatile right now, with customer credit scores dropping and bankruptcies on the rise, she says This strain is being felt by small and medium-sized businesses.
Forces at Work
What exactly is causing these emerging risks? Turbulent macroeconomics are certainly playing a role. “While there are a lot of companies that are doing just fine, others are feeling the bumps of such things as tariffs and sharp increases in oil prices,” Palmer says.
“Early-stage delinquency has remained relatively stable, yet the back end of the curve is getting a bit heavier—severity is up and charge-offs are increasing.”
“The macroeconomic factors—rising energy costs, inflation, geopolitical risks—have altered some borrowing behavior,” Goderis says. “Longer payment cycles among some end users can drive up administrative delinquencies. These would generally mean a lender is not writing them off, but they hang out in their numbers a bit longer.”
Other signs involve industry bellwethers. “Early-stage delinquency has remained relatively stable, yet the back end of the curve is getting a bit heavier—severity is up and charge-offs are increasing,” Pace relates.
Adding to this is an industry-wide uptick in delinquency rates, Goderis adds. “Charge-offs were low during the Covid era, but they’ve returned to more typical levels,” he says.
“Delinquency and charge-off rates are trending slightly above pre-pandemic lows of the 2010s but they still remain very manageable,” Palmer says. But the question now is whether tightening liquidity, inflation and elevated interest rates will push the market back to pre-pandemic levels.
And some verticals remain sluggish, although Class 8 truck orders are finally recovering, with February 2026 orders showing the strongest volume since 1996, according to transportation analyst FTR.
Agriculture, already feeling the impact of tariffs and trade policy, is now facing fertilizer price increases due to rising oil prices. “Ag has been struggling for a while, which has had a strain on customers,” Kirk says.
Not All Portfolios are Equal
Collections teams are handling fewer accounts, but they are more complex and tend to require more customization, judgment and creativity, Pace says. While middle market, essential-use equipment and secured lending are holding up, there’s more strain in small-ticket and micro-ticket portfolios.
“Borrowers facing the combined impact of inflation and higher overall debt loads are where we’re seeing the most stress show up,” Pace adds, “which is why segmentation and proactive account management are increasingly important.”
“Stress has shown up unevenly across portfolios, which makes a one-size-fits-all approach less effective,” Pace comments. Because of this, teams are relying on more tailored strategies. “Importantly, this feels more like a normalization cycle after an extended period of strong performance, rather than a broad-based crisis event,” she says.
“There’s an appetite for growth, as we rely on the data to show us the opportunities. But we’re not loosening our credit standards.”
A Stable Lending Appetite
Still, lender appetite for credit risk now is stable. “Most lenders are maintaining their position,” Goderis comments. With deal profiles remaining steady, he sees little signs of retreat.
Adds Palmer: “There’s an appetite for growth, as we rely on the data to show us the opportunities. But we’re not loosening our credit standards.”
Deal sizes have also increased, owing to the higher cost and sophistication of technology equipment, Palmer says. In response, many customers seek longer terms to manage debt service coverage ratios.
On the collections side, especially for larger deals, lenders seem willing to develop collaborative workouts rather than repossessing equipment, Palmer says.
“When you show customers what you can do as far as a workout, I think they’re willing to come to the table,” Kirk adds.
Automation Takes the Wheel
One reason that delinquency rates have held steady is that collections departments are “staying on top of the technology,” Kirk says. “We’re being proactive and using data to make informed decisions.”
“Our most significant shift has been a move toward more automation,” Palmer says. “We want our highly skilled underwriters to focus on more complex and high value deals, rather than more routine underwriting activities.” DLL is automating some of its onboarding activities using a risk-based approach, a move designed to reduce time while maintaining credit and compliance standards.
“Automation is essential to delivering the speed customers now expect, especially when it comes to underwriting and providing timely answers,” Palmer adds.
Western Equipment is in the early stages of using AI to seek initial signs of delinquency. “We’re asking how we prioritize and reaching out to our highest risk customers,” Kirk relates. Making sure the right companies are on the short list is then determined by departmental experts. “The best time to reach them is at that early stage, so we can help mitigate the trouble they’re having early on,” she says.
Fraud is Evolving. Fast.
Fraud is now an accelerating structural threat, says Fisher. Fraudsters are becoming more sophisticated and coordinated attacks leveraging real identity data are rising.
“The implication is clear: fraud risk must be embedded into core credit processes—not treated as a separate function,” Fisher says. (For Fisher’s further analysis of the evolving risk landscape, read this issue’s Executive Perspective.)
“The most effective approach is not ‘AI vs. human,’ but AI with human oversight, supported by strong governance, model validation, and auditability.”
One way to fight fraud is through AI. “AI expert Feedzai reports that 90% of banks are already using AI to enhance fraud detection and investigations, and a growing share of firms see fraud detection as the primary near-term AI use case,” Fisher says.
But realize the same tools improving fraud detection can assist criminals. “The most effective approach is not ‘AI vs. human,’ but AI with human oversight, supported by strong governance, model validation, and auditability,” Fisher adds.
The Watchdogs are Watching
Regulatory and compliance demands are still climbing, and so are the costs, Pace notes. Banks are putting more money into monitoring and reporting, while regulators are pushing tighter underwriting, stronger portfolio oversight, and better documentation.
“In practice, that can translate into slower credit decisions, more conservative deal structures and covenants, and increased scrutiny around policy exceptions and risk ratings,” Pace says. There’s also more pressure on residual assumptions, along with a greater focus on collateral valuation and recovery outcomes.
On the servicing and collections side, fair serving practices and complaint management are receiving heightened attention from regulators.
“The theme is clear,” Pace comments. “You have to be able to demonstrate that controls are operating effectively, not just that they exist, supported by more granular, near real-time reporting and transparency.”
“The evolving Basel III requirements will influence credit policy and a tighter focus on capital efficiency,” Palmer says. “As we automate more decisions, it’s important to be transparent about how those decisions are made and to reinforce that safeguards are in place to promote fairness.”
“There’s some anticipation of deterioration through the remainder of the year, but that remains to be seen.”
No Cliff, But Watch Your Step
As the year unfolds, our experts are watching the horizon carefully.
“There’s some anticipation of deterioration through the remainder of the year, but that remains to be seen,” Goderis says. For industries tethered to discretionary spending, rising costs are emerging as a potential repayment risk.
“I’m not forecasting a cliff, but I think we may see a slight deterioration in credit quality by the end of the year,” Palmer says. This is especially true if oil prices and interest rates remain high.
The Data-Driven Road Forward
Whatever 2026 brings, data will drive the road forward.
“I expect credit and collections to become even more data driven,” Pace says. “A key shift is toward more predictive, AI-enabled collections strategies.” Teams are moving beyond chasing past-due accounts by using AI to spot payment risks early, analyzing cash flow trends and payment behavior before problems escalate.
Propensity-to-pay models help prioritize which clients to call and how to approach them, Pace notes. Automation handles the routine tasks, so collectors can focus on the conversations that require human judgment.
“It’s best to approach technology skeptically, make sure that you have good data going in, and that you’re not relying just on it. It does not replace working with our customers.”
“Now, when you underwrite something, you take a static snapshot of that company,” Palmer explains. “By using AI to monitor portfolio trends, we can identify emerging signals earlier and adjust accordingly—reshaping what modern credit underwriting looks like.”
“It’s best to approach technology skeptically, make sure that you have good data going in, and that you’re not relying just on it,” Kirk says. “It does not replace working with our customers. We do that well and nothing will take the place of that.”
“AI, data analytics, and improved risk infrastructure offer the opportunity to move from reactive to proactive risk management,” says Fisher. “But success will depend on discipline: strong governance, integrated thinking, and a willingness to challenge assumptions formed in a very different credit environment.”
Come for the Content, Stay for the Connections
It’s a moment Dan Goderis has come to expect at every Credit and Collections Management Conference & Exhibition: an attendee will come up after a session to share something they learned that they can put to work back home.
“It always brings a smile to my face,” he relates. “This is an association that helps each other, that gives members the opportunity to grow.”
The Credit Managers and Collections Effectiveness surveys will also be front and center when the conference convenes June 3-5 at the Hyatt Regency Orlando in Orlando, Florida.
“It’s one of my favorite sessions,” says Sarah Palmer, “because it gives us the ability to compare our internal data with what everyone else is doing,”
Register for the Credit & Collections Management Conference & Exhibition here.
