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State of Credit and Collections

Navigating new market share realities

Last year, the fallout from the Silicon Valley/Signature bank collapses and subsequent rescues were just beginning to be felt. Not so in 2024.

In what is now referred to as March Madness, the repercussions of the rescues—resulting in a regulatory tightening that led several banks to close their equipment finance divisions—are still reverberating.

Now the equipment finance industry is undergoing a market share reshuffle among its major segments: banks, captives and independents. (According to ELFA's 2023 Survey of Equipment Finance Activity, banks held 63% of new business volume, captives accounted for 30% and independents made up the remaining 7%.)

“It creates an opportunity for independent financial companies and non-bank entities that want to get into or increase their market share in the equipment finance sector,” says Sarah Palmer, Head of Credit, AML and Commercial Finance, DLL. Palmer also chairs ELFA’s Credit & Collections Committee.


“With the number of big players that have exited equipment finance, something needs to fill the void. We’ll probably see more specialty finance companies come into the equipment finance segment and perhaps private equity firms as well,” Palmer says.

Ian Campbell, Director of Customer Service and Collections, Channel, agrees that there are opportunities. “However, we must evaluate how we want to progress. I don’t think there’s any company that’s immune to this economic environment, but quite a few that are making intelligent, data-focused decisions on how to best position themselves.”

Independents and non-banks, of course, do not operate in the same regulatory environment as banks. “They can do things that banks can’t do,” says Christine Holguin, Executive Vice President, Head of Credit, CCA Financial. “They can make a credit decision based on the facts and circumstances in a transaction as long as it makes sense.”

“There are certainly challenges but I believe that opportunities also exist for lenders that remain disciplined and patient,” says Rob Vickery, Senior Vice President—Regional Credit Officer, Huntington Bank.

For the most part, captives have remained out of this reshuffling. “We’re in a middle swim lane here,” says Jim Tobin, Director of Retail Credit, Volvo Financial Services, USA. “We’re here to support our dealers and our brands.”

Competition, challenges

“It’s super competitive right now on the credit side, especially from a pricing standpoint,” Holguin says. “Terms—both in length of transactions and equity investment in FMV leases—are very competitive.”

In addition, independents can face challenges in securing capital to strengthen their balance sheets and sustain equipment finance for small and medium enterprises, Palmer says. “Small and medium enterprises were often the ones served by the regional banks that have exited the business,” she says. “Capital is relatively tight, and they have to find capital somewhere.”

“We’ll probably see more specialty finance companies come into the equipment finance segment and perhaps private equity firms as well.” 

— Sarah Palmer, DLL

Start-up customers have also been impacted. “Not only did the venture capital companies lose access to capital, so did their customers,” Holguin points out. “Many customers are having to pivot to an entirely new go-to-market strategy. I’m seeing a lot of customers that have prepared budgets for multiple scenarios, something I haven’t seen since 2008.”

Holguin suggests that the easy money from the governmental pandemic response wasn’t ideal for young companies. “Where we do see some struggle is in businesses that have been around for less than five years.”

Interest-rate plateau?

While interest rates are no longer on a sharp incline, hopes that the Fed would start to decrease rates have lessened, particularly with the recent uptick in inflation.

“We started the year with a number of market participants looking for five to six rate cuts from the Fed,” Vickery says. “That’s obviously been throttled back and, in cases, some market participants are now predicting there will be one to two, or potentially no cuts this year. ”

Holguin notes that in addition to keeping capex purchases on the sidelines, higher rates are also impacting customer credit. “If you’re already a thin margin business, or you’re highly levered, dealing with today’s interest rate is impacting credit,” she says.

Christine Holguin3 
“It’s super competitive right now on the credit side, especially from a pricing standpoint. Terms—both in length of transactions and equity investment in FMV leases—are very competitive.” 

— Christine Holguin, CCA Financial

Any potential decrease should yield positive results. “From a collection standpoint, if we see interest rate decreases, I expect that to benefit everyone’s delinquency rates,” Holguin says. “Of course, the opposite is true if they rise.”

Credit and delinquencies

All the above means that credit standards have tightened in the past year. “There’s been a tightening in credit standards overall,” Palmer says. “It’s a bit tougher to get difficult deals done.”

“I don’t see any of the leniency that I saw before, because some of the banks have moved to the sidelines,” Tobin adds.

The consumer-side uptick in foreclosures and higher credit utilization prompt concern, Campbell notes. “They are indicative of what we see with a slowing economy and in some past recessionary periods, so that does bring pause and caution,” he says.

While there’s been an increase in delinquencies and defaults, Palmer questions whether it means the economy’s turning. “It could be just a normalization from the COVID era when portfolios were performing incredibly well,” she says.

“There are a lot of challenges with [the electric vehicle market]. How do you underwrite it? Does the customer have the charging infrastructure? What OEM is supporting it?” 

— Jim Tobin, Volvo Financial Services

“Although delinquencies are back up a bit, that’s expected,” Tobin says. “You can’t be at such low levels forever.”

What’s up, down

Two of the industry’s largest segments stand at opposite ends of the market.

ELFA’s “What’s Hot/What’s Not: Equipment Market Forecast 2024” named construction equipment—bolstered by increased governmental infrastructure investment—as the No. 1 market. Other equipment segments making the top of the list included machine tools, medical, high tech/computers and marine/intercoastal.

“Yellow iron and tractors are showing month-over-month increases in some equipment in that segment,” Campbell says.

And Baltimore’s Francis Scott Key Bridge collapse underlined the need for not only maintaining but increasing U.S. infrastructure investment.

On the other side, trucking is still in the doldrums, as it was most of 2023. “Spot rates in trucking have been going in the wrong direction,” Tobin says. “Trucking companies can’t de-fleet fast enough.”

“The smaller trucking operators are struggling, and now we have the Baltimore port issue that will further stress trucking,” Holguin says. Plus, trucking is a leading indicator in equipment finance, she points out. “If there’s less demand for goods, you’re going to see it in lower shipping volumes.”

EVs in the spotlight

The potential of the electric vehicle market continues to be tantalizing. “We’re going to see a big focus in financing the electric space,” Palmer says. Because of this, the ELFA Credit & Collections Conference in June (see box below) will offer a session examining the electric equipment market.

Rob Vickery 
“It comes down to continuing to closely monitor our portfolios and keeping our finger on the pulse of macro and micro trends.” 

— Rob Vickery, Huntington Bank

“There are a lot of challenges with EVs,” says Tobin, who will serve as a panelist on the conference session. “How do you underwrite it? Does the customer have the charging infrastructure? What OEM is supporting it?”

Tobin notes that exposures also need to be examined, especially considering higher initial costs. The in-vehicle battery also prompts questions of sourcing, lifespan and disposal and how to determine the resale value.

“Companies need to know how to structure the deals and what questions to ask,” Tobin says. “It’s coming. How do we prepare our underwriting teams to understand this equipment?”

Quarterly pulse taking

Quarterly industry meetings provide a platform for professionals to discuss trends and strategies. Campbell emphasizes the importance of these discussions in navigating the rapidly changing marketplace, fostering collaboration, and sharing best practices.

Past discussions have centered on technology, scoring-based models to target collections and recoveries, and using AI and robotics.

“It’s just a good network of resources,” Campbell says. “For example,  if I’m looking for some help on the East Coast about a troubled asset, I now have a go-to person I can contact.”

AI and robotics

The use of AI and robotics continues to invite exploration, especially in the administrative aspects of a portfolio that can bog down the collection process, Campbell says.

Campbell notes: “These tasks take away from the real blocking and tackling of a company’s collections and recovery pieces, which is reaching out to the customer and having a conversation about how we can partner for a positive resolution.”

Ian Campbell2 
“What’s key at the Credit & Collections Conference is building the lasting relationships that you can leverage throughout the year.”

— Ian Campbell, Channel

As a result, Channel is implementing a robotic assistance program to handle administrative tasks, allowing staff to focus on customer interactions.

Other firms are also exploring AI. “DLL is looking at how some of these tools can streamline the credit and collections process, how can we make them faster, more efficient and more responsive to our customers,” Palmer says. One example would be the automation of financial spreads, making the credit analysis process more streamlined.

“Everyone’s looking at their credit and collections side and investing more in efficiencies, staffing and technology,” Campbell says. “They want to make improvements in existing and future portfolio performance. Otherwise, they’re going to be behind.”

Resiliency continues

Despite potential disruptions in 2024, the equipment finance industry remains strongly positioned.

“The industry has been very resilient,” Palmer says. “Especially if interest rates level off, there’s going to be a lot of demand.”

“It comes down to continuing to closely monitor our portfolios and keeping our finger on the pulse of macro and micro trends,” Vickery says. “Keeping your eye on the ball with what’s going on in the industry as a whole.”

“There’s a lot of work going on to get through the noise and to get the context of what’s going on in the market,” says Tobin. “But take a deep breath everyone. Many of us have been through these things before.”


Answer the bell in Philadelphia

Timely issues, industry hot buttons and networking with colleagues will be highlights of the 2024 Credit & Collections Conference & Exhibition, June 4-7 at the Philadelphia Marriott Downtown. The theme is “Answering the Bell: Facing Higher Defaults, Tougher Credit Approvals & Increased Fraud.”

“There are plenty of challenges on both the credit and collections side as we return to some semblance of ‘normal,’” Jim Tobin says. “It’s always a great place to hear from other lenders about what they’re doing.”

A hybrid in-person and virtual conference debuted last year and will be continued this year. “If you can’t make it to Philadelphia, attending virtually is the next best thing to being there,” Sarah Palmer notes.

“I’m looking forward to hearing from others in the industry, both my peers on the bank side but also from captives and independents,” Rob Vickery says. “Each of us has different strengths and challenges. It will definitely be relevant and beneficial given the fluid nature of events going on now.”

Past attendees have their favorite sessions. “Everyone should attend the roundtables, especially if you’re new,” Christine Holguin says. “You get a feel for the totality of the industry.”

But networking remains the high point, according to Campbell. “What’s key at the conference is building the lasting relationships that you can leverage throughout the year,” Campbell says. “You’re better staged to keep a pulse on what’s going on even if you’re not experiencing it yourself. It’s powerful.”


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