Credit & collections experts see light at the end of the tunnel—and it’s not the train.

Stop, look and listen. That’s the old adage for crossing train tracks safely, and it’s what credit and collections professionals have been doing for several months now. As of early 2021, a number of these experts are saying the time has finally come for equipment finance companies to prime their engines and start growing again. 

“There’s definitely a sense of relief regarding where we are today, compared to where we were six months ago,” says Lou Maslowe, Chair of ELFA’s Credit & Collections Planning Committee and Chief Risk Officer of Marlin Capital Solutions. “Every industry counterpart I’ve spoken with says their 2020 portfolio results turned out much better than they had feared—significantly worse than in 2019, but better than envisioned. And while there’s still economic uncertainty, there’s also cautious optimism, due to the rollout of vaccinations, fiscal stimulus and pent-up consumer spending. It’s now time to focus on growth.”

Sarah Palmer, Senior Vice President, Credit Underwriting & Asset Management at Key Equipment Finance, agrees and credits federal relief measures for helping to stabilize many businesses. “Before the pandemic, we were all awaiting the next downturn,” she recalls. “But few of us expected a sharp contraction that drove massive disruptions in business activity. Thankfully, the federal government stepped in to provide stimulus that has kept a lot of businesses afloat. So, although we expected an unprecedented number of defaults, we haven’t seen the widespread failures that we thought might happen.”

Palmer says the company is still cautious, but adds, “Now that there are vaccines against COVID-19, we see the potential for businesses to regain confidence and move forward—a proverbial light at the end of the tunnel.”

Market Twists 

Chris Maudlin, Senior Vice President & Chief Credit Officer at Wintrust Specialty Finance, sees pent-up demand for normalized equipment acquisitions and thinks it will be released this year as companies gain confidence from government support and vaccination progress. But he doesn’t expect demand to surge in every market, however.

“Any business that requires people to gather in close proximity to one another will need to continue to adapt,” says Maudlin. “Industries that were formerly very reliable, such as hospitality and the bus and motor-coach segments of transportation, have been highly impacted and may take longer to recover. But there will be winners in every segment, and companies that find ways to adapt to the new norms quickly will have an advantage.”

Palmer looks for renewed focus on climate- and energy-related policies to affect a broad swath of industries. “Steps the new administration is taking toward carbon reduction may affect the auto and trucking industries, where equipment finance is heavily involved,” she says as an example. “This means we have an opportunity to help these companies gear up as they move toward making zero-emissions vehicles.” As for 2021, though, Palmer expects nascent recovery as the U.S. tries to return to a semblance of normalcy.

Chris Jung, Senior Manager, Credit & Risk Management at Cisco Systems Capital Corporation, says that for his company, new markets aren’t yet on the radar. “In the midst of every crisis comes opportunity, and the pandemic is no different,” he says. “Throughout all of the effects of the pandemic on our customers, we’ve seen an even greater need for Cisco technology and our customers’ ability to consume it. The pandemic has also presented us with opportunities to revisit our process, models and structure, and shown us where we need to lean into targeted risks with a long-term view.”

Jung further says the pandemic allowed Cisco to become even more of a strategic partner with customers as conversations, collaboration and joint solutioning began to occur at a deeper level. “Customer needs and budgetary requirements have changed throughout the pandemic, and these relationships are critical in understanding their needs,” he adds.
 

New Challenges, New Procedures 

In short, Jung says the pandemic has changed the way members of his department do their jobs. He explains: “Analysis of historical financials is an essential component of determining a customer’s financial health, and there’s been a shift at Cisco to focus on the actions customers are taking now to stabilize their financial position, as well as results during the in-pandemic period.”

Specifically, credit professionals are looking to see if the stabilizing actions are sustainable, and at ramifications of those actions post-pandemic. “Our customers, and even entire industries, are changing at a rapid pace, and we expect this to continue well into the future,” says Jung. “We’ll continue to rely on our credit platform, our data analytics and our decisioning frameworks to assess risk—but now more than ever, we need to rely on our human capital and decision-making to ensure a proper risk and reward that’s aligned with our long-term goals and objectives.” 

Maudlin says staying in close touch with customers as they’ve endured COVID-19 has also been valuable. “Our new business volume was up in 2020, and a portion of this was from companies investing in technology to help them adjust to the current environment,” he says. “Now we’re starting to see more normalized equipment acquisitions for our customers in addition to continued investment in technology.” 

If credit and collections employees weren’t already comfortable interacting virtually with customers, the pandemic forced the issue. “Suddenly we had to do it—and all of our due diligence—from our kitchen tables,” Palmer says with a chuckle.

Flexible working conditions were already in place at Key Equipment Finance when the virus hit, enabling most employees to work from home and hit the ground running. “Now we’re looking at what it will be like post-pandemic, and we already know that many of us won’t necessarily have to return to the office,” Palmer says. That’s good, because she says some employees have relocated during the pandemic.

Tech-induced Developments

Not that physical location matters anymore. “Before the pandemic, we always thought about recruiting and hiring locally, or incurring sizeable expense to relocate people,” says Maslowe. “Now it doesn’t matter where people are! Working from home has opened up tremendous opportunities to hire top talent and not be constrained by geography.”

Wintrust Specialty Finance has already increased headcount, hiring in sales, credit and collections and operations. “Being able to expand our hiring pool beyond the footprint of our office is a big win, and we now have a number of team members that we’re looking forward to meeting in person,” says Maudlin. To maintain team spirit and continue the personal aspects of communication, Wintrust uses BlueJeans video conferencing as much as possible. 

Of course, the other side of continuing to work remotely is that employees will be able to leave a company as easily as they arrive. “We’ll have to work harder to retain talent,” says Maslowe. But he wonders how to build and maintain company culture when everyone’s at home, and he’s particularly concerned about onboarding new employees remotely and running urgent projects. 

So is Palmer. “I think our entire industry needs to work through the challenge of training and mentoring junior workers,” she says. “In a virtual environment, how do you make sure they’re getting the experience and interaction they need?” Adds Maslowe, “It will be interesting for companies to watch the turnover percentages as we go forward.” 

Challenges notwithstanding, there’s no question accelerated adoption of technology has enhanced the credit and collections business. Use of electronic signatures and e-documents has become commonplace, as has managing business remotely and using technology in new ways to get things done. “Since people aren’t in their offices anymore, many equipment finance companies are enhancing their digital capabilities, making it easier for them to do business and faster for us to process it,” notes Maslowe. The upshot: more automation, more auto-decisioning, a greater focus on fraud and tools to prevent it, and more use of technology in collections, as in texting to reach borrowers.

 

Rapport with Regulators

Through it all, regulators have been supportive and responsive, say the bank credit and collections experts interviewed here. “We’re all going through this together, and regulators understand that,” says Maudlin. “They’ve worked with us to make sure there aren’t challenges to lending, and that’s been very helpful.”

“Banks played a critical role in the COVID-19 stimulus program, and I don’t know that many people realize this,” adds Palmer. “Banks were in charge of getting that stimulus out to businesses, and the regulators worked well with us, promptly addressing issues banks had in providing the relief and being accountable.” It seems clear that when it comes to their customers, equipment finance companies have done the same. All aboard now for a rewarding 2021!