The cloud of the COVID-19 pandemic continues to hover. Although the Delta variant threatens to exacerbate existing obstacles and introduce new challenges, the leaders of three Monitor 101+ companies also see many opportunities in the next year ahead.
Eric Freeman, Founder & CEO, Liberty Commercial Finance
When we laid the groundwork for the Monitor 101+ issue, it looked like the worst of the COVID-19 pandemic was behind us. By the time we conducted interviews with this year’s group of executives, the Delta variant was rapidly spreading in several U.S. states. By the time this article is printed, mailed and delivered to your mailbox (or inbox), it’s hard to predict the conditions we will face.
Despite this ongoing climate of uncertainty, the leaders of three Monitor 101+ companies — a captive, an independent and a bank-owned equipment finance company — remain optimistic when looking at the remainder of 2021 and the first half of 2022.
Tim Moriarity, SVP and manager of TriState Capital Equipment Finance (TSCEF), says TriState Capital Bank has been diligent in making sure it offers its customers the support needed to recover from any lingering effects of the pandemic. “Specifically, TSCEF has worked to clearly understand past financial difficulties of our customers and provide assistance required for a healthy financial recovery,” Moriarity says.
When it comes to an outlook, Moriarity has witnessed a dramatic shift already this year.
“Hesitancy in acquiring new equipment in 2020 has now turned into a scarcity of new equipment in 2021, especially in the transportation market. Once supply chain issues correct themselves, we are confident a more traditional buying cycle will emerge. I think that was one of the attributes of the market that I think surprised a lot of people.”
“Our outlook is very positive as a combined company because we only serve to finance our dealers and our direct accounts of Sany here in the U.S. and Canada,” Dean Waters, president of Sany Capital USA, says. “Our customers are literally running about 100% above budget for 2021.”
While the pandemic has created a shortage of equipment in many of the categories that Sany USA finances, Waters’ team has not been as impacted by this disruption. “We source all of our steel components from China,” Waters says. “Therefore, we haven’t had as much of a disruption in our logistics and supply chains as our competition.
“Our biggest challenge as a finance company is the fact our dealers are selling equipment
so fast, we are having a hard time maintaining assets on our books, which is not good from Sany Capital’s perspective. But from a combined entity outlook, it’s really good. Our dealers are doing great, and customers, in my opinion, are considerably better than they were even before the pandemic because they’ve done so well. Even through COVID, we never had a past due payment.”
Eric Freeman, founder and CEO of Liberty Commercial Finance, is keeping a close eye on the Delta variant and the effects it may have, but he also sees glimmers of hope. “The latest jobs report was really positive, so there is lots of hiring and lots of jobs out there. That’s a good sign that companies are getting back to normal,” Freeman says, noting Liberty Commercial Finance has always been a generalist when it comes to the industries it serves. “We have a do-not-lend-to list but don’t really have a do-lend-to list,” Freeman says. “The do-not-lend-to list expanded quite a bit during COVID, as you might imagine. Certain industries are going to get hurt worse than others.”
In Q1/21, Liberty Commercial Finance decided to stay on the sidelines when it came to impacted industries such as oil and gas, hospitality, restaurants and retail, but it began to reenter these spaces in Q2/21, which led to a “really good” first month of Q3/21 for the company.
“We’re cautiously optimistic,” Freeman says. “We can get some really quality obligors in our portfolio that banks are still hesitant to lend to, but these are companies that have performed and shown that they can weather the storm. Even with the concern of the Delta variant, I feel really good. If you could weather total shutdown and oil prices at -$36 and some of the massive headwinds that we all faced last year, the folks that we’re looking at can continue to weather that storm. We are looking to get back into those industries sooner than some of the banks so we can add some value to folks that are still finding it difficult to borrow while they’re starting to see a turnaround.”
Freeman says Liberty has also entered the crypto space. “We’ve been financing some miners of Bitcoin and Ethereum and then hosting companies and vending companies. I don’t know how much of it’s COVID-tied or if the industry is just starting to mature to the point where some of these companies are financeable, but that’s been an exciting new industry that we’ve been tackling this year as well.”
Just as shadow cannot exist without light, there are many opportunities arising in response to the conditions created in the last year and a half, according to the Monitor 101+ leaders.
“Given the anticipated post-pandemic economy and pending infrastructure legislation, capital-intensive industries should experience a resurgence over the next one to three years,” Moriarty says. “A rising interest rate market, along with modest inflation, may subdue this expansion, but TSCEF is well positioned to support customer’s equipment leasing and lending in our footprint. We continue to stay in close contact with our customers and prospects throughout the pandemic, as relationships are key to our approach. We intend to emerge as a long-term financial partner to customers and prospects alike and become their top choice when making equipment finance decisions.”
A silver lining for Waters is Sany’s growing brand recognition after it gained attention at the Associated Equipment Distributors conference and expanded marketing efforts in the U.S.
“We’re optimistic we will be able to grow our dealer network by another 20% next year,” Waters says. “We’re very optimistic as we continue to expand our product offering within the construction space. We have a tremendous amount of momentum right now and we’re very optimistic about the rest of this year and particularly 2022, as long as the economy holds.”
Freeman sees the amount of liquidity in the market as an opportunity. “While that’s a threat because it adds a lot of competition, we’ve been on a pretty sustained capital-raising effort the last 18 months and closing a couple big deals the last nine months. We’re working on a new one right now, and the cost of capital and the amount of capital that’s out there, I’ve never seen anything like it.”
Freeman says Liberty is focusing on raising as much capital as possible so it can pass a lowered cost of borrowing on to its customers. “So we can lend it at 200 basis points less than we are today and still be profitable,” Freeman says. “I see that as a great opportunity.”
Stepping Up to Challenges
No opportunity comes without challenges. Waters’ biggest concern boils down to politics, specifically the relationship between China and the U.S., as Sany Capital USA is owned by China-based Sany. He is also keeping an eye on interest rates and the impact they may have on the economy.
“Hopefully our countries will come to realize we both really rely heavily on each other, and it’s better for both of us to be strong economies and play well together,” Waters says. “We had embarked, when I came to the company in 2018, on moving as much of our manufacturing to the U.S. as soon as possible. We’re still working on that. The biggest challenge is working out logistics, finding third-party providers of the components that we either can’t make efficiently here ourselves or that are too expensive for us to build out the capability to make it here.”
Waters says the pandemic has created workforce challenges as well. “Finding people able but, more importantly, willing to work right now is a huge challenge. The people are there. They just need to be motivated to work. We have significant job opportunities within Sany here between Sany America and Sany Capital, so we’re looking for good people.”
The biggest challenge Freeman sees is competition. “We’re in a place right now in the economy where a lot of companies are still cautiously investing in their businesses. For bigger projects, everybody’s waiting and maybe not wanting to pull the trigger. So, there are definitely fewer deals in the market today than there were pre-pandemic.”
While there were also fewer deals during the Great Recession, Freeman points out that there were fewer competitors. “That didn’t happen this time. Everything was propped up, so most of our competitors made it through. So now, you’ve got a whole bunch of hungry finance companies and banks chasing fewer deals. We’ve just seen rates come down tremendously. I’ve never seen such a competitive landscape.”
Moriarity lists attracting customers as a challenge for TSCEF: “Finding customers that fit our profile and adding value to their financing process will always be a challenge. Name recognition can be difficult, and we rely on our relationship managers and customers’ endorsements to attract quality companies moving forward. We will be vigilant in a potential fast-moving economy to ensure we communicate the correct message and attract quality customers,” Moriarty says.
One of the benefits of being in the Monitor 101+ crowd is the swiftness that comes with a smaller size.
“As part of TriState Capital Bank, TSCEF offers superior financing solutions alongside a nimble and responsive review and documentation process,” Moriarity says. “Bigger institutions have name recognition, but our approach relies on personal attention, and we believe our people and products can complete with much larger companies. Recent M&A activity within the banking space and adverse COVID-19 related issues should allow TSCEF to provide a stable and competitive alternative. Our on-boarding strategy appeals to companies that may be struggling with larger institutions or are no longer satisfied with more traditional lenders. We certainly have strong and reputable competitors, but our efforts should allow us to attract quality customers.”
“Being a small institution, we are highly flexible,” Waters says. “I still personally know every single credit we do. I know that we can’t continue to do that forever, but I still talk to every one of our customers almost every month. And I don’t see that changing until we get over 100 customers, and we have 50 dealer customers right now. But being nimble, being responsive, being able to understand and approve credits that may not have been approved by other institutions has been a key to our success. We also have a full business development team that I’m part of who work with our dealers and customers to improve their businesses.”
“Banks move like a cruise ship. You start turning the wheel and it might take a while for the boat to actually change direction,” Freeman says. “As an independent finance company, we realize one of our biggest value-adds to the market is that we can move quickly. When the market changes, we can change in 24 hours.”
Freeman says Liberty’s go-to-market
strategy involves finding the spaces in which banks are unable to meet the needs of the middle market and lower middle market.
“Whatever part of the market that banks aren’t efficiently lending to, that’s where we step in and help,” Freeman says. “When you have so much disruption in the market, whether it’s certain industries or just rates moving around, we jump in and exploit those cracks. And there’s a lot of them right now. We’re chasing certain industries and credit profiles, where the efficient bank cheap money hasn’t quite come back all the way.”
When Waters joined Sany Capital USA, one of his primary goals was to get the company virtual so he could visit a dealer anywhere in the U.S. while continuing to operate the company. Because of this advanced planning, Sany Capital was already prepared when the COVID-19 pandemic hit.
“Our biggest challenge was taking that same ‘not in the office’ mentality and applying it to the sales and distribution side,” Waters says. “On the distribution manufacturing side, you can’t manufacture a machine from home, so the biggest challenge was putting in all the protocols so our workforce felt safe to come back to the plant. That was a challenge. Educating our plant staff and the staff that had be here in the office, putting the appropriate protocols in place, monitoring everybody both before they enter the facility, as well as when they
the facility. We made it through COVID even with a lot of our staff still being here in the office on the production side without any incident, so we were very, very proud of that.”
“TSCEF is a young company,” Moriarity says. “The timing of the pandemic allowed us to accelerate our relationships with many reputable peers within the capital markets. We efficiently executed transactions with larger lenders, validating that we can be a capable and trustworthy financial partner. Our financial peers appreciated our performance which will pay dividends moving forward.
“We also ‘doubled down’ on our direct calling efforts within the middle-market and are confident these efforts will position us well for the future. Executing on both fronts was challenging for such a young company, but we performed well and are confident our efforts will prevail.”
The early days of the COVID-19 pandemic were scary for Freeman. “We were only three years old when everything shut down and were bootstrapped at that point with no investors in the business other than myself and my wife.”
During the 2008 financial crisis, many funding sources dried up for independents, and Freeman initially feared that would happen again. Although Liberty’s access to funding was not interrupted, that initial experience gave Freeman a new outlook. “We dodged a bullet,” Freeman says. “If all the banks had just stopped lending and everybody just decided to sit on the sidelines for a year or two years, Liberty wouldn’t be here anymore. I don’t want to be 100% reliant on outside capital.”
With fresh inspiration, Freeman focused on building Liberty’s balance sheet by bringing in some equity and debt. “Now we can control our own destiny a lot more, so we’re a much different company today than we were a year ago,” Freeman says. “We closed on bringing in a private equity partner just about a year ago at the end of July. Added some term debt, added some unsecured debt and are closing on a new securitization coming up soon. I don’t know if it was all pandemic related. It was all always in the original business plan. But it certainly accelerated everything probably by three to four years to make sure that we weren’t 100% reliant on other people’s credit decisioning and ability to lend.”
Building & Maintaining Teams
Since Waters appeared in the Monitor last summer, his team has grown from two to six. “We’ve been very fortunate to find quality, talented, very intelligent associates to add to the Sany Capital team. But it has come at a large expense of time and research. I personally spend at least an hour to an hour and a half every day on the human resource side just looking for people,” Waters says.
Universities, networking and personal connections have been the best resources for Sany Capital’s search for employees. “Our biggest success has been attracting young talent, really smart people just coming out of university that find the allure of working for a global multinational company like Sany an exciting challenge,” Waters says. “You won’t be pigeonholed in a single department at Sany Capital. You’ll be involved in a lot of different things. Everybody here is dedicated to a certain function, but everybody is cross-trained in multiple functions, and we all work together as a team.”
Moriarity’s team at TSCEF is also cross-trained. “Many of TriState Capital team members, especially in TSCEF, are veterans of the lending industry and previously worked at larger institutions. At TriState Capital, the traditional lines of demarcation between departments are blurred. Our team helps each other whenever needed with whatever is required. The success of TSCEF is 100% a team effort. This culture was validated over the past 18 months and will certainly lead to our success. The days of ‘that is his/her responsibility’ are over,” Moriarity says.
“We’re very fortunate and we have a very stable, steady team,” Freeman says. “We’ve experienced almost zero turnover since inception, and that’s helped. Having a revolving door in sales or in operations or credit just kills you, especially with things moving so quickly. I feel like we’ve probably managed that better than most.”
One of the biggest challenges Freeman faces today is whether or not to add to Liberty’s roster. “Things were slow this time last year, but they’ve cranked up. We had our best July ever last month. Do we hire a bunch more people or will things slow down again through this Delta variant?
“We hire and they become part of our family. And we’re not in the business of cutting people and letting them go because things slowed down for a little bit. So, trying to manage what that output is going to be is a huge challenge because you’ve got to provide good service for customers to come back, but at the same time, you don’t want to have a whole staff sitting around playing solitaire.
“If we can repeat July and this month and next month and if everything can stay where it is right now, I’m extremely excited about the future of this company and this industry. There’s a ton of positive momentum happening right now. As a business owner, I don’t want to get too excited. I’m still trying to keep my eye on some of these outside threats. But things are feeling really good. There’s a lot of money in the market. There are deals. We have good people. And the industry seems to be doing well. So, all things positive right now.”