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ELFA 61 – The Good, The Not-So-Good, and The Unknown

November 14, 2022, 07:00 AM

Each year, we look forward to the ELFA Convention. It gives us the opportunity to connect with old friends and clients and to forge new relationships. It also allows us to get a sense for how people are feeling about the year to come. This year, it was harder than usual to get an accurate take on lender and lessor sentiment.

Many of the company heads we spoke with were optimistic, telling us they had high expectations for continued growth in 2023. At the same time, nearly everyone said they expect higher default rates and/or reduced deal flow and/or ongoing labor challenges. We were so curious about what we heard that we created a short survey. You can see the results at here.

The long and short of this apparent contradiction is this: How can an equipment leasing or finance company plan for growth while they are working to reduce rising portfolio risk, maintain revenue growth and guard their operating margins?

Of course, these opposing dynamics are always at play in equipment leasing and financing. But these days the economic headwinds we’re all facing seem more serious. The threat level is going up. For some, it’s going way up. So, while it seems that most of the industry is looking forward to another good year in 2023, it also seems to be an especially good time to think about ways to reduce risk and optimize portfolios.

Based on our experiences over the past 22-years, we have some ideas that might help…

  • Identify Problem Potential – At any point in the lifecycle of an equipment lease or loan, certain behaviors or conditions could be warning signs. Maybe its insurance or DoT information. Maybe it’s UCC data. If 2023 looks like a riskier year for you and your company, then anything you can do to get ahead of loan or lease performance problems is a good idea.
  • Get Creative – When problem potential is identified, find ways to work with borrowers and leaseholders to modify their terms or find a willing buyer. By entering into dialogue with the borrower early, you can reduce the probability of default, preserve relationships and protect your reputation.
  • Systematize Plan B – Though we hope default rates remain at historic lows, it’s likely that more loans and leases will end up having to go to collections and/or recovery in 2023. If and when that happens, ask yourself if your existing policies, procedures and workforce will lead to the best financial and reputational outcomes. If you’re not sure, you owe it to yourself to work with your leadership team to find out why.

If our fellow attendees at ELFA’s 61st Annual Convention are right, and we hope they are, 2023 will be another year of growth. It will also be riskier. So, whether it’s portfolio risk, sector risk, regulatory risk, default risk or margin risk, you may want to start thinking now about what you will do to monitor and manage it before it ends up managing you.

Brian Noble
Founder & Chief Executive Officer | Asset Compliant Solutions
Brian Noble is the founder and CEO of Asset Compliant Solutions. For more than 25-years ACS has partnered with asset-based lenders and lease finance professionals to execute loss mitigation strategies that improve portfolio performance due to underperforming loans. ACS delivers compliance-based solutions with a proven commitment to professionalism, brand representation and client/customer experience.
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