Scott McClain,
EVP,
First Horizon Bank

The capital markets in equipment finance are seeing a return to normalcy after a turbulent 18 months. While banks and financial institutions that previously sat on the sidelines are re-entering the market, uncertainty surrounding tariffs, regulatory changes and economic fluctuations continues to shape the industry. Scott McClain, EVP of First Horizon Bank, shares his perspective on current trends, challenges and strategies for navigating capital markets in today’s landscape.

A RETURN TO BUSINESS AS USUAL
When asked to describe the current state of capital markets in equipment finance, McClain’s response was clear: “Pretty much business as usual.” He notes that banks and investors that previously reduced activity due to economic instability are now back, actively seeking opportunities. The industry has seen similar cycles before, where temporary economic downturns lead to brief pullbacks before a resurgence of capital inflows.

“The players that were on the sidelines during the last 18 months are back, and even those that made big cuts are trying to return,” McClain explains. “This is a replay of what we always see during these economic blips.”

The fourth quarter of 2024 marked a turning point, with many banks re-engaging in the equipment finance capital markets. However, unlike some short-lived surges, this renewed participation appears to be ongoing. “If anything, people are probably getting more engaged because assets have run off,” he adds. McClain’s institution never stopped lending, which has positioned them well in the recovering market.

CURRENT TRENDS: A FLIGHT TO QUALITY
One of the most significant trends McClain observes is a “flight to quality.” As competition returns, pricing has begun to tighten, which is typical when more players re-enter the market. He also highlights specific sectors facing challenges, including trucking, which has become increasingly difficult to finance.

“The biggest issue is uncertainty. Between tariffs being implemented or removed, shifting geopolitical dynamics and economic volatility, businesses are hesitant to commit to new projects,” McClain says. While replacement capital expenditures will likely continue, growth-related investments may be more cautious.

Beyond trucking, other industries such as chemicals have also faced stress. Supply chain disruptions and unpredictable global policies make it difficult for companies to plan ahead. “Clients are trying to give themselves enough buffer to adjust to whatever the new normal becomes,” McClain notes. “They’re building up inventory ahead of potential tariff changes, which creates another layer of unpredictability.”

INVESTOR APPETITE AND REGULATORY CHALLENGES
McClain does not see a major shift in investor appetite for equipment finance assets, with the exception of trucking. However, for banks, regulatory changes present a more pressing challenge than investor sentiment.

“The biggest challenge for banks in capital markets today is regulatory,” he states. Following recent banking crises, regulators have adopted more stringent stances on risk ratings and credit reviews.“ They are taking a more punitive approach than before, making it expensive for banks to carry assets. This is a consistent message I hear at every institution where I’ve discussed this topic.”

McClain believes that while the current administration seems to favor less regulation, it is still too early to predict the full impact. “If anything, we might see regulatory easing, but how quickly that happens remains unclear.”

CHALLENGES FOR NON-BANK PLAYERS
Beyond banks, independent finance companies face their own set of challenges. Many rely on bank warehouse lines for funding, and rising capital costs could put pressure on their operations. Tighter lending terms could further constrain these players, particularly those backed by private equity.

“Private equity can be fickle,” McClain warns. “When things are good, they’re all in. When conditions shift, they tend to exit quickly. That can potentially make long-term stability a challenge for some independent finance companies.”

THE RISK LANDSCAPE: CAUTIOUS OPTIMISM
While trucking remains the most problematic sector, McClain notes that risk factors extend beyond a single industry. The chemical sector has seen difficulties, though these were largely expected. The unpredictability of global trade policy adds another layer of risk, making it harder to assess long-term credit stability.

“The speed at which things are changing is unprecedented,” he says. “Tomorrow, we could wake up to news that tariffs on Mexico and Canada are gone, completely altering the supply chain dynamics overnight.”

Given this volatility, McClain expects capital markets to remain stable unless there is a major macroeconomic event that shifts credit trends. “If current conditions persist, competition will increase. But if we see major shifts in credit quality, it could cause another pullback,” he explains.

ADVICE FOR EQUIPMENT FINANCE COMPANIES
When asked what equipment finance companies should do to strengthen their capital market strategies, McClain’s advice is simple: Stay consistent.

“Don’t get in and out of the market. Whether you’re conservative or aggressive, consistency is key,” he emphasizes. “When companies jump in when things are good and disappear when conditions change, it strains their relationships with funding sources. Stability builds trust and long-term success.”

ALTERNATIVE LENDERS AND MARKET DYNAMICS
McClain notes that while private credit has flooded into the market over the past few years, he doesn’t see a significant shift in the types of investors entering the space. “There are some new players, but nothing outside of what’s already been covered in industry publications.”

LOOKING AHEAD: COMPETITIVE BUT CAUTIOUS
As competition continues to increase, McClain urges market participants to stay disciplined. “Stick to your risk appetite. Don’t chase deals outside of your expertise just because the market is hot,” he advises. “That’s how you lose money and the confidence of management.”

Ultimately, while the capital markets in equipment finance have rebounded, ongoing regulatory challenges, economic uncertainty and sector-specific risks require a measured approach. Companies that remain disciplined and consistent in their strategies will be best positioned to navigate the shifting landscape. •