Wondering about the current and forecasted 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 survey uniquely provides qualitative insight into hard data and a forward-looking perspective. The results are based on feedback from 211 ELFA credit, collections and executive management leaders and covers a wide array of topics, including: credit process, credit scoring, turnaround times, policy changes, regulations, deferrals and modifications, application thresholds, booking volume, unfavorable industries, and the macroeconomic environment at bank, captive and independent leasing companies.
The 2021 Credit Manager Survey was presented via a Wednesday Webinar on August 25, 2021. A replay and slide deck are available via the ELFA website at https://www.elfaonline.org/events/elearning/web-seminars/credit-managers-survey.
Top takeaways include:
- 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.
- 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.
- Views on future collateral values appear to be informed by where you sit.
- Captives are more optimistic and Banks less optimistic.
- Considerable external regulation remains for Banks, albeit decreasing over the last four years.
- Modest levels for Captives and Independents.
- Relatively high for all (Banks, Captives, and Independents).
- 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 due to Covid were significant, approaching 7.5% of earning assets.
- For smaller firms and portfolios, the level approached nearly 30%!
- Requests from customers to modify credit or documentation requirements have eased over the last two years.
- But requests are still at elevated levels from prior years.
- Obvious deterioration in 2020. Forecast shows continued improvement in most sectors going forward.
Lessons Learned from the Pandemic
- Stay disciplined and diversified.
- Cash is “KING.”
- Financing of essential equipment is still a good idea.
- Having flexible and resourceful staffing is essential.
- Expectations rose significantly for all groups and categories.
- 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
- Oil & Gas
- Metals & Mining
- Services (restaurants, hotels, etc.)
- Respondents are mixed on Transportation
Economy and Industry are coming Full Circle
- Increase in business Volume and Originations
- Improvement in Credit Quality
- Industry confidence is rebounding!
EF remains an integral part of the economy
Infrastructure and rebuilding of America post-Pandemic are positive factors
What Keeps you Up at Night
- Government related
End of stimulus
Levels of national debt
- “Competitor’s” risk appetites
- 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!
The 2021 Survey Committee consists of six equipment leasing and finance professionals, 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.
Looking Ahead to 2022
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 (firstname.lastname@example.org) or Kevin P. Prykull (email@example.com) for details. And, save the date for the 2022 Credit & Collections Conference, June 6 – 8 at the Hilton Palacio Del Rio in San Antonio, Texas.
The Equipment Leasing and Finance Association (ELFA) is the trade association that represents companies in the nearly $1 trillion equipment finance sector, which includes financial services companies and manufacturers engaged in financing capital goods. ELFA members are the driving force behind the growth in the commercial equipment finance market and contribute to capital formation in the U.S. and abroad. Its 575 members include independent and captive leasing and finance companies, banks, financial services corporations, broker/packagers and investment banks, as well as manufacturers and service providers. In 2021, ELFA is celebrating 60 years of equipping business for success. For more information, please visit www.elfaonline.org.