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Trusted Relationships Strengthen Vendor Finance Industry

Date: Jul 15, 2020 @ 06:00 AM
Filed Under: Vendor Finance

It’s never been truer than it is right now: Solid relationships carry vendors and vendor finance companies through good and bad times.

In the vendor finance world, the unprecedented challenges of COVID-19 are reinforcing best practices while teaching new lessons. Foundations built over decades-long relationships are moving the industry forward despite the shockwaves and economic shutdowns of a global pandemic.

Perhaps now, more than at any time in our vendor finance careers, we are relying on effective communication, business sector knowledge, respect and trust to execute a total industry reset that will make us stronger in the face of future uncertainties.
Virus Impact Requires Rapid Response
Without dwelling on the struggles caused by COVID-19, it is fair to say everyone has shared in the sense of helplessness that comes from a pervasive global health and safety problem. After the pandemic hit, our teams faced daily adversity along with our vendor clients, a grinding halt in business activity, and the rapid adjustment to new working environments and processes. As vendors scrambled to respond to this business blindside, vendor finance companies dealt with restructuring deals and rebuilding pipelines, and they worked through deferral requests and first payment defaults. In some cases, finance companies had to walk away from deals, while those that proceeded required a heightened level of understanding and effort to complete.

In this new environment, we’ve nurtured relationships built over years, and in some cases, decades. In short, we’ve really had to trust each other and to figure out how to work together in completely new conditions. Salespeople, who tend to be conditioned for resilience, struggled to see the way forward and still found ways to stay upbeat and get business done. If we had to say no, we did it quickly and told our vendor clients why. If they pulled a deal, they were honest with us.

It wasn’t easy and it may not be for a long time, but like carbon under pressure, the vendor finance industry is growing stronger and more prepared for future challenges.

Adjusting and Forging Ahead
The impact of COVID-19 on vendor finance companies is mostly characterized by the responses to deals already on the books, and the new kinds of deals necessary to address unexpected needs caused by the pandemic emergency. Here are three examples:

  • With its focus on travel and leisure, the motorcoach industry has been hit hard by shutdowns and stay-at-home orders and continues to face slow resumption of normal activity. The impact, however, isn’t across the board. A motorcoach operator might have 90 percent of the business halted by travel restrictions but find 10 percent experiencing a surge in transportation needs for shuttle services for large hospitals and essential facilities. This means the company might need a deferral on one side of the business but need to acquire equipment on the other.
  • Similarly, some hospitals experienced surges in COVID-19-related needs but saw elective surgeries and other routine healthcare completely stop. This left them with new niche peripheral needs like ventilators, testing and lab equipment, and technology devices to respond to the local emergency while adjusting to huge revenue losses from the pause in non-emergency healthcare.
  • With the workforce exclusively working from home, technology vendors have experienced an uptick in everything from network enhancements to greater security initiatives. In one instance, the ability to adjust to a deployment of mobile assets throughout several geographies posed tax and asset-tracking challenges. But the vendor and end user worked together to research the implications (hopefully temporary) and in the process revealed solutions to a problem that may carry over to additional business in the future.

To address these and similar unprecedented circumstances, finance companies have had to be nimble and find ways to provide vendors and their customers with some breathing room. For customers that needed equipment to respond to new and unexpected needs, finance companies came up with new structures and solutions.

Maintaining and Strengthening Relationships
When we look back on 2020, we will credit good communication with seeing us through, and hopefully, coming out the other side with stronger relationships.

Even with fewer deals happening, thoughtful communication about what’s going on in the industry can provide a runway for new business when the economy picks back up. This means staying engaged in a variety of ways, whether picking up the phone or writing personalized emails, and generally providing expertise and information about industry trends and credit quality.

It’s also important that when a request comes in, it is treated with the utmost care. Finance companies need to show how their organization can add value, because it may be the only deal that vendor is doing that month.

Establishing and Maintaining Trust
Crises have a way of revealing fault lines in a relationship’s foundation, but trust can hold it together. This means trusting that the vendor is providing all details necessary to assess a deal, while having an experienced financing team to elevate the full story and a management team that supports deals that make sense.

There is no substitute for due diligence and asking the right questions, which builds continuity and trust over time.

Getting Business Done in a Pandemic
For all the challenges brought by COVID-19, there are many learnings. First, vendor finance companies, along with our vendors, will look at our relationships differently going forward. We won’t take for granted the importance of relationships built on trust, respect and knowledge. Second, we are resetting expectations across the board.

For example, six months ago the industry saw pricing and returns that didn’t always make sense, as well as documentation deficiencies and other poor practices. Gradually these expectations are being reset, and, as a result, we have deals with pricing commensurate with credit quality and deal structure, as well as seeing much stronger credit quality in deals being presented. We are also seeing a new understanding of the importance of solid end user and assignment documentation.

This reset has changed the way everyone views the vendor business. It will help us more quickly get back to what makes sense, provide really good rates, great service and quick turnarounds.

Now, everyone is approaching deals with a give-and-take mindset. The result is better outcomes, business satisfaction and an industry made better by one of the greatest global challenges of our time.

Shawn Arnone
SVP, Commercial Vendor Finance | Key Equipment Finance
Shawn Arnone is Senior Vice President and head of the commercial vendor business at Key Equipment Finance, leading the technology, industrial, healthcare and specialty vehicle segments.
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