Gary LoMonaco,
Senior Managing Director & Head, Business Assessment Practice,
The Alta Group

At the time of this writing, numerous factors are influencing the credit markets in equipment finance. Almost daily, one can read about new proposed tariffs or their recission, the termination of geopolitical alliances or their reinstatement, the abrupt closing of various governmental entities or their just as abrupt reopening. Add to these the enactment of the Current Expected Credit Loss (CECL) standard, the lingering impact of inflation and higher interest rates, the proliferation of artificial intelligence, increasing cybersecurity threats and other issues, and the role of credit manager has become significantly more difficult. Key to managing through these complex dynamics is seeing beyond the immediate issues, embracing change and understanding your client base and your portfolio.

Governmental Challenges

The current administration is clearly intent on reducing the volume and rigor of lending rules and regulations. Initially, these efforts were limited to merging the Consumer Financial Protection Bureau (CFPB) and the Federal Deposit Insurance Corporation (FDIC) into the Office of the Comptroller of the Currency (OCC). There will most certainly be further changes, the results of which could have wide-ranging effects on lenders whether or not they’re governed by the OCC. Equipment finance companies will need a structured process to monitor these changes and assess their impact on operations. This includes maintaining close communication with legal counsel, industry associations and regulatory bodies to anticipate potential impacts on lending practices.

Data Privacy and Protection

It’s hard to underestimate the importance of aggressive data protection in today’s environment. A report by American Banker states that the number of records leaked in data breaches in 2024 was greater than the number of people living in the United States. With the increased use of AI and data analytics, data privacy has become a critical concern. Regulations such as the General Data Protection Regulation (GDPR) in Europe and the California Consumer Privacy Act (CCPA) in the United States have established stringent guidelines for the collection, storage and use of personal data. The deregulation of the federal government has the potential to put state and local regulations in conflict with federal requirements. Recent finance company data breaches at Finastra and others underscore the importance of data security and the magnitude of the threat.

Lenders today must approach the collection and holding of data as a significant source of risk. The approach should include baseline principles such as:

• Data minimization. Only collect what is absolutely necessary to assess risk. Avoid collecting and holding any data that doesn’t meet that standard.

• Constant re-evaluation of security protocols. Protection of personal data must be robust and must evolve to combat the ever-changing tactics of bad actors.

• Transparency. Firms must clearly communicate to customers about data collection practices and about how their data is used.

• Quick action. Every firm needs a clear and fast procedure for reporting breaches to authorities and impacted customers as quickly as possible. Timely and transparent communication is essential to minimize the erosion of trust these events can cause.

• Vigilant compliance. Local regulations may vary by jurisdiction, so close attention to compliance requirements is essential as a firm’s business footprint expands or changes.

Fair Lending Practices

Regulatory authorities have historically focused on promoting fair lending practices, ensuring that all individuals have equal access to credit. Anti-discrimination laws are in the process of being de-emphasized and the lack of a legal framework has the potential to increase the number of lawsuits regarding lending practices. Lenders should assess their litigation risk and associated costs before changing any fair lending practices.

To minimize potential litigation risk, lenders can take steps such as using analytics to monitor lending decisions for bias, ensuring credit staff are educated about fair-lending laws and standardizing underwriting to minimize room for discretion that could lead to discrimination.

Policy Changes and Their Effects on The Economy
At least in the early days of the administration, policy decisions are having broad impacts on the general economy. Proposed tariffs have the potential to drive inflation due to global supply-chain integration and threatened retaliatory actions by trading partners. Manufacturers are stockpiling raw materials as a hedge against potential rising costs, diverting capital that otherwise could be used for equipment investment. General uncertainty has led to decreased consumer confidence, which has wide-ranging impacts on the general economy.

Key to understanding risk and managing exposures is a thorough portfolio review. As part of that analysis, prudent lenders should be asking:

• Does our company have exposure to endangered government departments or agencies, either directly or through borrower relationships?

• Are we tracking state regulations across the spectrum of jurisdictions in which our company has concentrations?

• Do we understand the changes in the regulatory environment and how they may impact our business model?

• Are our clients at risk of tariff-related margin compression and how can we help them manage through the issue?

• Are our clients diverting liquidity to amass pre-tariff raw materials and how might that affect their ability to repay?

To navigate economic uncertainties, credit teams should closely track macroeconomic indicators, trade policies and tariff impacts that may affect borrowers’ liquidity and capital investments. Conducting stress testing and scenario analysis can help anticipate how market shifts may influence portfolio risk.

Changing Technology

Over the past few years, technology has played a pivotal role in revolutionizing the business landscape. The integration of AI and machine learning (ML) has enabled businesses to improve processes and reach higher levels of efficiency than ever before. Equipment lenders are increasingly adopting AI into their decision-making processes, yielding accurate and fast credit decisions. These technologies analyze vast amounts of data, including social media activity, spending patterns and even geolocation data to develop comprehensive credit profiles.

Automation and Efficiency

Automation has certainly enhanced underwriting processes, reducing credit turnaround times to mere minutes or even seconds. A recent McKinsey & Company survey found that 80% of credit risk organizations intend to implement Generative AI (GenAI) technologies within a year. These tools can be used to enhance existing credit scoring models by accessing alternative data (rent or utility payments, spending patterns, financial history, etc.), often discovering patterns that older models can miss. In addition, GenAI can be utilized to detect bias, fairness issues and fraud, not to mention developing new and innovative financial products driven by changing borrower needs and economic conditions. Utilization of AI for these purposes requires that lenders go beyond an ad hoc approach and devote resources to IT infrastructure, as well as an approach that coordinates data across the organization. There are many pitfalls to fully turning the process over to AI, including copyright issues, plagiarism, malware and security issues, privacy, the risk of using proprietary data and a host of regulatory, legal, reputational and business issues. Lenders must continually evaluate and assess the validity of manual and automated processes to ensure that current risk dynamics are appropriately valued and understood, and that the decisions they produce can be clearly communicated and justified.

Blockchain and Security

Blockchain technology has been instrumental in enhancing the security and transparency of lending transactions. Secure, immutable ledgers ensure that all parties involved in a lending transaction have access to the same information, managing certain types of fraud quite effectively. Additionally, smart contracts automate the execution of loan agreements, ensuring compliance with terms and conditions. However, outside of blockchain, fraudsters continually up their game with ever more sophisticated methods. Lenders must be careful to avoid a false sense of security and keep abreast of the ever-changing fraud risks inherent in automated processes. Some questions to consider:

• Is the race for speed compromising our need to understand and manage fraud risk?

• Are we taking advantage of fraud prevention resources available to us, such as ELFA forums, bank fraud monitoring resources and internal training opportunities?

• Have we revalidated our scoring and underwriting models given the rapidly changing risk environment?

• Is there a robust transaction and vendor review process, designed to identify fraud-related risks?

Shifts in Consumer Behavior 

The expectations and behaviors of consumers seeking loans have evolved significantly. Borrowers in 2025 are more informed and tech-savvy, demanding greater transparency and convenience in the lending process.

Rise of Fintech and Online Lenders

The emergence of fintech companies and online lenders has disrupted traditional banking institutions. These new players offer innovative lending solutions, including peer-to-peer lending and crowdfunding platforms, providing borrowers with alternative sources of credit. These platforms often have less-stringent approval criteria — making them attractive to individuals with limited credit history — and have changed the expectations of potential borrowers across the board.

Customer Experience

In 2025, customer experience is a primary differentiator for lenders. Borrowers expect a seamless, user-friendly application process, with real-time updates and personalized offers. Lenders that prioritize customer satisfaction and invest in digital platforms are more likely to attract and retain clients. Lenders should recognize the risks and opportunities that the proliferation of fintechs present. Yes, they provide rapid decisioning and efficiency, but often at the cost of relationships and pricing. Make sure your company is clearly communicating its value proposition and that employees are living these values in their day-to-day interactions with clients and stakeholders. The best companies combine a seamless client experience with a strong relationship orientation that maximizes the opportunity for repeat business.

Other Challenges in The Lending Industry

Financial Reporting

The adoption of the CECL model has significantly impacted the lending industry. CECL requires lenders to estimate and report expected credit losses over the life of a loan, rather than waiting for a loss event to occur. This forward-looking approach aims to provide a more accurate representation of credit risk and enhance financial stability. However, the implementation of CECL has posed challenges for lenders, including the need for advanced data analytics and robust risk-management systems. The past few years have been greatly influenced, both positively and negatively, by COVID and its related issues, making CECL modeling especially difficult.

Economic Uncertainty

The global economic landscape in 2025 remains uncertain, with factors such as geopolitical tensions, inflation and market volatility impacting lending decisions. Lenders must navigate these uncertainties by adopting flexible risk-management strategies and closely monitoring economic indicators.

Conclusion

The state of lending approvals in 2025 is marked by technological innovation, regulatory change and higher borrower expectations. Lenders that harness and continually improve the power of AI, prioritize data privacy and offer exceptional customer experiences are well-positioned to thrive in this dynamic landscape. However, they must also address the challenges of cybersecurity and economic uncertainty to ensure sustainable growth. As the lending industry continues to evolve, staying ahead of these trends will be crucial for success. Having a partner like The Alta Group to help make sense of the current environment is more important than ever for continued success in the equipment finance market. •

Gary LoMonaco is a Senior Managing Director and Head of the Business Assessment Practice at The Alta Group, a global advisory firm exclusively dedicated to equipment finance since 1992.