As 2024 came to a close, commercial finance and leasing companies were cautiously optimistic. Declining interest rates, easing inflation, a rebound in economic activity, and the hope for a more favorable regulatory environment set the tone for what many believed would be a year of growth and stability.

Yet just a few months into 2025, that optimism has been replaced by a far more familiar and challenging sentiment: uncertainty.

Today’s economic landscape is defined not by progress, but by persistent volatility. Tariffs have emerged as a dominant force, triggering ripple effects across supply chains and global trade flows. The direction of interest rates is anything but clear, inflation remains a live threat, and the regulatory backdrop continues to shift in ways that are difficult to predict.

Borrower reaction

In this environment, borrowers are reevaluating the fundamentals of their businesses. Supply chain strategies are being scrutinized. Capital expenditure plans are being delayed, reduced, or reshaped. Certain industries—particularly steel, automotive, and those dependent on complex global supply chains—are feeling the effects of tariffs most acutely. But the degree and duration of the impact remain uncertain.

Even U.S.-based companies that rely entirely on domestic sourcing are not immune. As the cost of imports rises, these businesses face complex decisions: hold prices steady to pursue market share, raise prices to protect margins, or find a middle ground. Each approach carries macroeconomic consequences. If enough companies pass higher costs along to consumers, inflationary pressure may build—potentially forcing the Federal Reserve to reintroduce monetary tightening. The specter of stagflation, a concern many believed was behind us, is once again part of the conversation.

Micro and macroeconomic risks in play

For risk managers, the stakes have never been higher. Today’s environment demands more than broad economic awareness—it requires granular understanding of individual industries and companies. Tariff exposure, supply chain vulnerability, interest rate sensitivity, and regulatory risk all must be evaluated at a portfolio level. Flexibility in strategy and decision-making is no longer optional; it is a necessity.

As of April 2025, the picture looks increasingly complex:

• Tariffs are proving more disruptive than expected
• Equity markets have entered bear territory
• Recession risk is rising sharply
• Inflation is a real and present possibility
• The direction of interest rates remains uncertain
• Supply chains are strained and unpredictable
• Export risks are growing due to reciprocal trade barriers
• Loan demand is weakening
• Credit risk is on the rise

Lean into the basics

And yet, amid this uncertainty, the core tenets of risk management remain as relevant as ever. Now is the time to lean into the basics: identify sectors and borrowers with elevated exposure, adjust credit criteria as necessary, monitor portfolio concentrations, run sensitivity analyses, and reexamine reserve strategies. Discipline and consistency are essential.

One of my longtime credit mentors frequently simplified the focus with three questions—a framework I return to often, especially in volatile periods:

“Can they pay? Will they pay? And what do we do if they don’t?”

That fundamental lens of credit evaluation remains a timeless guide, particularly when the future feels anything but certain.

Looking ahead, it is worth acknowledging that much of what we see today could change rapidly. The first quarter of 2025 has already brought significant swings in sentiment and outlook—and there is little reason to believe that pace will slow. For risk professionals, the only constant may be the need to be nimble and resilient.

We may not be able to predict the next turn in the road, but we can prepare for it. That preparation begins with vigilance, flexibility, and a steadfast commitment to sound credit practices.