The equipment finance business, like the confectionary business, has a good future — even a great future. There are five reasons:

But back to the confectioner, The Candy Man. Confectioners have a future. People like a variety of sweets to meet their many different tastes. No one company really controls the market, although some large, well-known companies are leaders. The distribution systems are varied, price points range from premium to commodity, and value ranges from real to what is perceived. There are always the risks of regulation driven by ingredients and nutrition.

But whether it’s from Godiva, Mars, Nestle or the local store — whether it’s a chocolate bar, cotton candy, jelly beans or Hershey Kiss, candy needs sugar or a good synthetic substitute. No sugar or sugar substitute, no candy. No candy, no industry.

For the foreseeable future, three to four years, the equipment finance business, in all of its forms, needs sugar. The business will be driven by the availability and cost of capital. The bottom line — there will be an equipment finance industry and it will grow. But companies will need their “sugar to make their candy.”

So for the equipment finance business, the capital markets will shape new winners and losers by determining who has power in the marketplace. The macro effects will be shrinkage of capital creation because of deleveraging, regulation, capital requirements (Basel II and other regulations), transparency and the virtual implosion of capital expanding vehicles such as CDS, CDO, SPV and others. So, less sugar — and certainly less synthetic sugar — will change the equipment finance landscape. The companies with access to capital will dominate in taking the opportunities; others will be consolidated or eviscerated. The results will affect finance companies, their direct customers, and their indirect business conducted through manufacturers and vendors in the following ways:

Within these two models will be further variations driven by the available funding, strategies, risk appetites, capabilities and the varied needs of customers.

This value position will be offered in small-ticket and low end middle-market vendor programs and middle-market direct. Banks should dominate this area because it fits within the “footprint marketing” and “total customer pocketbook” objectives of the bank. It meets a certain range of finance company, vendor and end-user needs. Captives can also compete here if they have scale and financing, while otherwise smaller captives should ally with vendor finance providers.

This is an area where a very few established independents will be found, funding realities will not allow it.

This value position requires very different capabilities. It will be offered by independents and some captives. Personnel with combined sector/asset knowledge and finance transaction attributes knowledge will be essential. Pricing is “premium” in that it is easier to sell on more than rate, and attributes will be differentiated.

In summary, today’s equipment finance candy man has learned his lessons. The industry can’t go sugar-free, and the ingredients must be tested and measured against best practices, then packaged for the company’s sweet spot and for its customers’, vendors’ and VARs’ varied tastes, because the competition will be tougher than ever.

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Michael J. Fleming is a principal in the North American region of The Alta Group, and assists clients in strategic consulting, leadership development, market and competitive analysis, unilateral and multilateral agency and association projects. He is the immediate past president of the ELFA, and under his nearly three decades of leadership, the ELFA enjoyed sustained program, productivity and financial growth. Fleming’s background includes positions as a professional educator, business manager and leader of nonprofit volunteer organizations. He is a former chancellor of the Exchequer Club of Washington, and is a member of the Board of Governors of the City Club of Washington as well as other professional organizations. The Alta Group is a global consultancy exclusively focused since 1992 on helping equipment leasing and finance companies implement best practices. For more information, visit www.thealtagroup.com.