For the equipment leasing and finance industry, “interesting times” have returned once again to challenge participants in the marketplace. With $100 a barrel oil, the extended housing slump, reduced consumer confidence, tightening credit markets and a resulting uncertain economy, 2008 promises to provide the greatest challenges in recent memory for lessors seeking third-party financing.

What do the current market conditions mean for the average independent lessor in terms of securing competitive funding and what steps should be taken to ensure a stable supply of funding in 2008?

First, it’s time to take a reality check. The days of ridiculous financing spreads and seemingly unlimited liquidity, even for poor credits, are effectively over.

While large investment-grade transactions will still be able to attract excellent rates, funding sources will likely be charging higher spreads in 2008 for the same credits approved in 2007. In addition, some lenders will be avoiding certain industries (such as construction and mortgage lending) regardless of the credit quality.

Now is a good time to review the portfolio and identify customers that may not have a realistic chance of receiving funding in the current environment. Also, to focus the company’s marketing efforts on prospects with credit quality will ensure that completed leases or loans can be financed within current debt or equity facilities.

Second, review current pricing guidelines to ensure that new proposals are priced appropriately. The liquidity crunch has caused funding sources to experience higher borrowing costs, which will likely lead to higher-yield requirements for loans and leases acquired from third parties. Don’t rely on last year’s experience to set lease and loan rates — the market has moved and your company needs to move along with this increase. Sales, credit and syndication managers alike will need to ensure that current prospects and customers will fit within the credit and pricing profiles of a cautious and skeptical financial market.

Ray Ellingsen, vice president and treasurer of Forsythe Technology, has lived through several industry cycles. “We conduct a quarterly pricing survey of all of our funding sources to ensure that we are aligned with the market,” he says. “The pricing over treasuries model has gone out the window for now, so we have adjusted our pricing and proposals to match our debt sources’ cost of funds pricing models.”

Third, strengthen your relationships with existing funding sources. Any market downturn will cause a “flight to quality” and it’s incumbent on each company to ensure that relationships with each funding source are valued and managed to ensure that your organization is regarded as a reliable and dependable source of investments.

Make contact with each source and ensure that you have a good understanding of their current challenges and market position and recalibrate your pricing and credit guidelines to fit your partner’s current requirements. Do you have any open issues with your funding sources? Get them resolved now to help avoid large conflicts that could result in a breakdown of the relationship.

“We view our funding sources as long-term partners and an important part of our business model”, says Eric Ausubel, senior vice president of CSI Leasing, Inc. “We make sure that we provide accurate and comprehensive disclosure to our partners — whether the information will positively or negatively effect a transaction. Our lenders need to be able to trust us to provide full disclosure in every instance.”

Fourth, expand your horizons. Now is a good time to begin discussions with other banks and finance companies to expand your pool of funding sources. At this point, it may be too early to tell which of your existing sources may be affected by a sudden cut back in business investment volume (and personnel) as a result of the current market downturn. Any market downturn will inevitably result in further consolidation among funding sources, as evidenced by Merrill Lynch’s sale of its leasing subsidiary to GE Capital and ABN AMRO’s sale of its LaSalle subsidiary to Bank of America.

Attending the Equipment Leasing and Finance Association’s National Funding Exhibition in Chicago (April 16 & 17 at the Fairmont Hotel) is an excellent way to meet a large number of prospective sources under one roof. Use this meeting to identify new prospects that may be a good fit for your customer base and industry, and start the process of educating people about your firm’s unique market position and capabilities. The best time to find a new funding source is when you don’t need one.

Finally, don’t overreact. While conditions may be challenging, remember that business cycles are part of the industry and that the current trends will not last forever. Certain market sectors, such as trucking, were hit hard in 2007, but will eventually recover as we move toward 2009 and beyond.

Make sure that you continue to stay aligned with your current funding sources as you have in the past and strive to continually improve and broaden your relationships. Now is the time to show your banks and equity partners what your company is made of by thriving, rather than simply surviving, during these “interesting” times.

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David R. Cardew is vice president, Syndication at PHH First Fleet, a subsidiary of PHH Arval. He leads the syndication department for the company, including buy and sell activity. Cardew has more than 20 years experience in leasing and corporate finance, including roles with GATX Technology and Sun Financial Group. Cardew is a member of the Equipment Leasing and Finance Association’s planning committee for the National Funding Exhibition.