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ELFA Credit Manager Survey: Is the Perfect Storm Brewing?

July 06, 2018, 07:15 AM

What is the state of credit and collections in the equipment finance industry? The 8th Annual Credit Manager Survey provides some key insights. The survey results, based on feedback from 128 ELFA credit and collections leaders, were presented at the association’s 2018 Credit and Collections Management Conference, June 4-6 in New Orleans. The 2018 survey covered a variety of topics, including credit metrics at bank, captive and independent leasing companies; collateral and residual valuations; credit processes; regulation; and the macroeconomic environment.

Top Takeaways
Highlights from the 8th Annual Credit Manager Survey include:

  • Portfolio quality remains good and confidence is high.
  • We are in good times but—those with 10-plus years of experience are nervous at this stage of the economic cycle.
  • 40% of the respondents to the survey expect growth volume to exceed 10% in 2018.
  • Respondents said the overall view is to maintain current standards regardless of lender type.
  • Using more technology to gain efficiencies is the goal.
  • The regulatory environment remains time consuming and intense, extending beyond just banks.
  • Increases in requests from clients to modify credit or documentation requirements include:

        --Financing of a higher percentage of intangibles
        --Longer financing terms
        --Waiver of guarantees
        --Waiver in change of control
        --Waiver of cross defaults
        --Softer notice and return provisions

  • Stable Probability of Default (PD) but watch out for Loss Given Default (LGD).
  • Unfavorable industries exist:

        --Metals and mining
        --Some agriculture

  • Fraud remains a concern
  • Have credit managers become way too complacent with the stellar credit results? We will pay a price for this!
  • Have we already forgotten the lessons learned in the not-so-distant past?
  • As credit managers comb through their portfolios, policies, processes and new approvals, a frequent question asked is: “What are we missing?”

Is the Perfect Storm Brewing?

  • Rising interest rates
  • Higher leverage
  • Loosening of credit structures, terms and conditions
  • Uncertain collateral recovery rates
  • Unfavorable tax impact
  • Pricing competition  

What Keeps You Up at Night?

It is truly the question on the survey “What Keeps You Up at Night?” that is the most telling. In linking this survey question to the countless discussions at the Credit and Collections Management Conference, it is the last takeaway above—“Is the Perfect Storm Brewing?”—that is most unsettling to credit professionals within the equipment finance industry. Are we really ready for the unexpected events and the inevitable downturn in the credit cycle and are we managing our portfolios accordingly? Only time will tell.

The 2018 survey committee consisted of six equipment leasing and finance professionals, including:  Scott McCann of Wells Fargo Equipment Finance, Patrick Moore of Paynet, Michael (Mic) Mount of US Bank Equipment Finance, Amy Wingate of Cisco Systems Capital Corporation, Rachel Kling of Wells Fargo Equipment Finance and Kevin P. Prykull of PNC Equipment Finance.

For more on this topic, a recording of the “General Session - Credit Manager Survey” from the 2018 ELFA Credit and Collections Management Conference is available in ELFA’s Conference Resource Center.

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