Cost of Doing Business: The Funding Source Perspective on a Turbulent Economy

by Monitor Staff Mar/Apr 2023
Representatives from Amur Equipment Finance, NFS Leasing and SLR Equipment Finance share their thoughts on how a rising rate environment, geopolitical events and other factors are affecting deal flow, the cost and availability of capital and more.

How is the level of deal flow activity today versus what it was a year ago? If activity is higher, is it the result of more deal flow from existing sources or an increase in the number of origination sources, or both?

Tom Casey, SLR Equipment Finance: Deal activity flow has increased given an increasein our sales team, origination sources and the implementation of a new vendor-focused platform.

Tom Casey, CEO, SLR Equipment Finance

Todd Wainwright, Amur Equipment Finance: Deal flow has remained relatively consistent year over year thus far into 2023, which is strong considering that Q1/22 was a record quarter for us. We have seen a nice uptick from January to February, with over a 10% increase month over month in new applications, and we expect the same or better in March. We have certainly seen customers pausing equipment acquisitions in hopes that rates will come back down, but overall have been very happy with the continued strength of our deal flow considering the change in the overall market conditions.

Ashley Whyman, NFS Leasing: NFS Leasing experienced 32% growth in originations in 2022 due to our team’s exceptional efforts and the support of our partners. Additionally, we have observed a notable increase in activity at the start of 2023. This uptick is attributed to a rise in volume from new and existing customers and several growing vendor partnerships. Vendors are seeking to increase approvals beyond what their traditional lending sources can provide.

Todd Wainwright, Vice President & Director of Risk, Amur Equipment Finance

Do you expect these trends to continue? What are the key drivers behind your optimism/pessimism?

Casey: The expectation is that this will continue based on the launch of our vendor platform at the start of the year and market improvements in our focused asset classes.

Wainwright: We expect to see increasing application volume throughout the first half of the year. This will be a result of a couple of factors: (1) the strength of our existing origination relationships and (2) the development of new partnerships as the market changes and some market participants change their focus or pull back. We remain 100% committed to our industry and our relationships and view times like these as opportunities to demonstrate our commitment to our partners. We are not oblivious to the current economic pressures and market conditions and know that it will take significantly more effort to continue to grow and flourish, but our credit team, led by Chief Risk Officer Andrea Zana, has maintained discipline and positioned us to capitalize on opportunities.

Whyman: Our outlook is optimistic, not only about our growth but also about the value our capital provides to businesses, enabling them to expand and thrive. We anticipate that our

Ashley Whyman, President, NFS Leasing

growth trajectory will continue at a high rate, driven by businesses’ investments in capital equipment, such as manufacturing, automation and innovative technology solutions.

What are some of the factors you’ve had to deal with when you go to the marketplace to compete as a funding source?

Casey: Increased competitive landscape, volatile interest rates and ongoing supply chain issues are factors that we are facing as we compete in the marketplace.

Wainwright: There are so many great companies in our industry, so we certainly appreciate the healthy competition in the marketplace. This competition has forced us to continue to innovate and invest in our service delivery. We aim to provide our customers and partners the best service in the industry, hands down, every time. This is an ambitious goal, but we know that this is what we need to deliver to achieve our goals. Another big challenge is hiring. Despite the rising rate environment, inflation and more and more talk of the “R” word (recession), unemployment is extremely low. Finding quality folks is as challenging as ever.

Whyman: Due to our niche in the non-investment grade credit space, we have a captive audience with our customer base. In order to close competitive business, we often utilize creative and collaborative structuring.

How are current geopolitical events affecting your business?

Casey: Supply chain issues have caused funding delays and/or opportunities from surfacing. Environmental, social and governance considerations have provided some opportunities given the behavior of some of our competitors.

Wainwright: It goes without saying that geopolitical events impact the equipment finance industry. Whether it’s the Russia-NATO conflict, U.S.–China relations with Taiwan, surveillance balloons, fear of increased cyber-attacks or myriad other events; all have some level of impact. Obviously, anything that impacts the equipment supply chain has and will have a direct impact. Anything that impacts the value of the dollar or prevents inflation from subsiding will have an impact. However, being a small-ticket lender and dealing almost exclusively with small businesses, we find small businesses to be extremely resourceful, resilient and, for lack of a better term, gritty. We’ll be here to support them.

Whyman: The supply chain issues are not affecting our customers as dramatically as they did a year ago. However, there are still delays in the availability of some types of equipment coming from overseas, which has pushed out equipment delivery timeframes. To date, the war in Ukraine has not had an impact on our business operations. NFS remains committed to supporting our customers through macroeconomic challenges that may arise in 2023.

How have the recent interest rate increases impacted cost and availability of funds?

Casey: The recent interest rate increases have increased cost but not availability.

Wainwright: Cost? Yes. It’s hard to imagine that the recent rate increases haven’t impacted virtually everyone. Availability? No. Our capital markets team led by Dane DiMartino, vice president of capital markets, continues to do as well as anyone in the industry. We are capitalized to capture virtually any opportunity that comes our way.

Whyman: The recent rise in interest rates has had no impact on our availability of funds. We have plenty of dry powder to put to use to help businesses grow. However, like all the industry’s direct lenders, our cost of funds has kept pace with the rise in interest rates.

What’s your outlook for the equipment finance industry in 2023?

Casey: Our outlook remains optimistic given pent-up demand and areas of strong activity, such as in the construction and infrastructure sectors.

Wainwright: As commented on earlier, we believe there will be ample opportunity in the first half of 2023, but it will require more work and dedication to achieve. We are cautiously optimistic about the second half of 2023 — especially for certain sectors — as inflation eases, Fed rate increases subside and folks have had more time to adjust to what is likely a new economic norm (or old norm for some of us) for the foreseeable future.

Whyman: We remain mindful of continued interest rate increases in 2023 and inflation’s impact on the equipment finance industry, on businesses and on the economy as a whole. That being said, we are optimistic that 2023 will be another year of origination growth for our business and for our partners. Businesses will continue to require capital for equipment acquisitions, and tightening lending standards will create additional opportunities for NFS Leasing. Equipment lessors who are responsive to their customers’ needs and offer flexible financing are well-positioned to achieve growth in 2023.

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