What do you view as your most successful deal of the past year and how did it come about? 

Depping: 2018 was an excellent year for us and it is hard to point to any one deal. Our primary goal for the year was to build out our direct sales team. We have been building the direct business since 2014 and it is a natural complement to our vendor business. We developed a training program for the sales reps with little to no financing experience, Ascentium University, and then began an aggressive hiring program. We were able to more than double our volume for the year and expect this pace of growth to continue in 2019.

Fate: The deals we deem most impactful to our success are those we choose not to pursue. Our unwavering commitment to our core disciplines is the primary reason we’ve had zero credit losses since inception. However, to answer the question more directly, a couple of transactions come to mind. In one instance, a large money center bank was exiting a market segment and offered to sell us a portfolio of assets with a request to close in an expedited time frame. We were able to accommodate the seller and closed on time at a purchase price that allowed us to leverage those assets with a new funding source at 100% of the acquisition cost. Another example involved an aged leverage lease. Our initial purchase price offer was declined. One month later when the originally mandated investor was unable to fund, the seller came back and ultimately sold the transaction to Stonebriar at more attractive economics and with greater potential upside at end of lease term.

Freud, Weinewuth: The sale of our business to Mitsubishi Lease and Finance Company is by far the most successful transaction of the year for us. This is a very exciting time for ENGS. MUL is one of the largest finance companies in the world, and ENGS is the North American vendor-based platform for MUL.

Golobic: GreatAmerica is a vendor-based, primarily small ticket company processing well in excess of 100,000 transactions annually, so I can’t point to any single transaction that would stand out. We are excited about some of the newer structures we are experimenting with to provide additional financing in the technology space as some of the paradigms there continue to move.

Heckathorn: In Q4 of last year, we were successful in closing a vendor-centric deal with a publicly listed healthcare equipment and services company. Under this deal, Amur provides a broad spectrum of equipment finance solutions to end customers. We consider this deal the most successful of the past year because this new relationship is a great opportunity for us to further diversify and expand into other healthcare and medical related segments. Furthermore, the first transaction we closed through the master relationship involved a small woman-owned, minority business that required financing for diagnostics equipment. Closing the initial relationship was exciting, but being able to provide a small and growing minority-owned business with customized financing solutions was most gratifying.

Market volatility seemed to be the name of the game in 2018. How do you think it did or didn’t affect the industry? If the latter, why not?

Depping: Early in the year the economy and market were doing very well, and it showed in volume and delinquency. During the summer, we hit 5 year-lows in delinquency and had strong volume. It seemed that in the fourth quarter there was a clear change in momentum and volume slowed and delinquency edged up. Since January, we have seen fairly clear movement with volume being strong and delinquency edging down.

The impact on the equipment finance industry is clear. Volatile markets lead to indecision by businesses. The up and down of the market in the last year combined with a Fed that seemed to change course overnight, plus the added volatility from the trade issues with China make it difficult to plan capital expenditures.

Freud, Weinewuth: There certainly was volatility in the broader macro markets, but this did not affect our segments like you might think. In fact, all our segments experienced record growth in 2018 with demand for equipment significantly outpacing the supply. This led to extended order boards and limited vendor stock throughout the year, which is pushing delivery of our approvals into 2019. We are seeing some leveling off now, but we think the economy will remain strong enough to keep our segments in positive growth for the year.

Golobic: I am not sure that market volatility has affected our industry much. There is always a psychological impact as businesses re-examine their large capital investment plans when they see a wrinkle in the current economic expansion, but I haven’t seen evidence of this so far.

A lot of equipment sector players are starting to keep their eye out for an economic downturn. What plans have you made or steps have you taken to mitigate the next contraction in the economy?

Depping: The inverted yield curve and other leading indicators have been flashing red for a while now. The impact of the Fed’s reversal in strategy seems to have had a positive impact though. We have been systematically tightening credit in some of our more cyclical verticals. We have not slowed our growth projections and continue to aggressively hire sales reps.

Fate: The economy has been in expansion since 2009 and undoubtedly will soften at some point in the future. Economic cycles do not change Stonebriar’s fundamental underwriting standards. We will always focus on the essentiality of the assets, the obligor’s liquidity and access to capital, the management team’s proven track record of successfully managing through cycles, and the company’s demonstrated ability to service its obligations. The Stonebriar leadership team has succeeded through multiple downturns over the course of their careers by adhering to disciplined structuring and underwriting philosophies. Our experience teaches us time and again that in a slowing economy or industry downturn, there is vast opportunity to access new customers with stronger credit profiles. While we never chase volume, we look forward to quality opportunities for new business.

Freud, Weinewuth: ENGS has been lending on equipment for 67 years, and we have ridden through many cycles. We have deep performance analytics that tell us the types of credits that perform during cycles and those that struggle. We don’t try to play the macro-economy and change our underwriting and other disciplines to mirror the current economic trends. Instead we stay true to our tried and true underwriting philosophy and book credits that perform in and out of cycles.

Golobic: At GreatAmerica, our approval criteria are basically the same in a recessionary environment as they are in a period of economic expansion. I don’t think loosening up in good times and tightening up in bad times makes much sense, because applications that are just over the lowered

credit threshold in good times will probably not fare well in economically weaker periods and vice versa.

Heckathorn: Our business practice is to always be prepared for economic downturns, as they are by nature inherently unpredictable in both timing and severity. Our underwriting guidelines are therefore designed to both be proactive and ensure as much stability as possible.

What technological shifts have you made or adopted in the past year? Do you have any planned for 2019?

Depping: As an independent small ticket company, technology is our life blood. We are constantly investing in proprietary technology. During 2018, we fine-tuned our credit scoring with machine learning and AI. We also invested in predictive marketing to help score leads and position us to efficiently market directly to small business.

In 2019, we are scheduled to put in a new back end system and a full new release of our internal proprietary customer facing systems.

Fate: In early 2018, Stonebriar recognized the need for an internal resource to improve, develop and manage its technology infrastructure to support its growing business. We hired a chief technology officer to analyze and prioritize opportunities to harness technology. [We] upgraded [our] CRM system and instituted new protocols for inputting information that have improved pipeline and portfolio reporting. We also overhauled our website and developed a digital marketing plan to grow brand influence and recognition.

In 2019, we will continue to implement new processes that maximize the efficiency of our team. The plan is to further enhance the processes that have made us successful in our first four years, while planning for additional needs to scale the business in the next three to five years.

Freud, Weinewuth: We continue to invest heavily in our customer interfacing systems and our back-office systems. We just rolled out this year a new front-end system based off of Salesforce.com that provides our vendors with a completely digital experience from application entry, credit underwriting, e-documents and funding that enhances the customer experience and shorten the processing time and funding time for our vendors by days. In addition, we introduced our fintech platform, LenderTrax, which allows customers to search for equipment and receive an approval 24 hours a day and our vendors to create documents and close transactions after hours and on weekends even if we are closed.

Golobic: We have a few bigger projects in the pipeline that leverage mobile technologies to bring the best experience to our customers. In addition, we are building a new website that will launch in the next fiscal year

Heckathorn: In 2018 one area of focus was data analytics: building out company-wide reporting on a raft of metrics and measures, based on a data warehouse that consolidated information from all core systems. In 2019, the agenda is very much focused on enhancing the customer and vendor experience, a specific example being to offer electronic documents to our customers.

What’s the one thing that keeps you up at night and why?

Depping: Credit quality is the big one. Credit is the one area a company must stay focused on, especially as an independent lender. Equipment finance companies who survive for decades take the credit aspect of their business very seriously.

Fate: We continue to sleep well at night. The front end of the business continues to generate significant and viable growth opportunities. The portfolio is performing well above industry standards. Our team remains committed, focused and energized about the future.

From a financing perspective, we recently closed our 5th ABS issuance with another successful placement well received in the market. Because of the portfolio’s strong credit performance, our four-previously issued ABS transactions have enjoyed regular ratings upgrades from Moody’s and Kroll. Two of our primary goals for 2019 are to reduce interest expense and to continue diversify SCF’s funding sources.

Freud, Weinewuth: The one thing that could throw a wrench in our plan is if the U.S. economy slows dramatically due to trade wars or other events that drag on the economy. Things within our control such as our value proposition, our service levels, our product offerings, we feel good about these. The other stuff such as the overall economy, politics, trade wars, we can’t control them, so we are not going to waste time to worrying about them.

Golobic: Although I am a poor sleeper, it is not because I lose much sleep over GreatAmerica. I feel good about where we are and directions we’re taking. What we need to continuously focus on is that, no matter how well we are doing, we never become complacent and forget what made us successful in the first place; our culture of care for our customers and each other, our work ethic, a relentless pursuit of excellence and our strong sense of values.

Heckathorn: At this point the challenge is keeping up with the growing pace of evolution within a long-established sector that has been a little shy of embracing new practices and technologies. With tried-and-tested approaches having proven effective in supporting long-term business success, how do more mature finance companies embrace the potential offered by new technology platforms to drive growth in their businesses? We think in all this, the customer experience will be critical.

Is there anything else, not covered above, you would like to share with our readers?

Fate: Noise in politics and equity markets is distracting to some, but recent developments like the Fed’s easing of monetary policy, the lowest unemployment in recent history and the anti-climactic end to the Mueller investigation are positive indicators for an extended runway for growth that we believe will extend into 2021. At its 4-year anniversary, Stonebriar is just hitting its stride. As a private independent, we can pivot quickly when necessary, but we will continue driving efficiencies and looking for strategic opportunities as we strive to grow our portfolio from $2 to $5 billion over the next 3 to 5 years.

Heckathorn: We are convinced that hard-asset financing will remain a tremendously exciting sector to finance. It really does represent a slice of the tangible U.S. economy. There are so many essential tasks performed across the nation today that people don’t even think about: from maintaining railroads, to laying curbs, servicing radio masts, automating warehouses or cutting metal with water jets. Each of these tasks require supportive assets, and while often expensive (hence the need to finance), they will support the livelihoods of employees across the country and keep our economy moving. We’re proud to be part of it.