Vendor Finance in 2018: Dexter Provides a Multi-Faceted Perspective

by Dexter Van Dango May/June 2018
With the help of a few vendor-experienced friends, Dexter Van Dango explores several topics relevant to vendor finance, including strong new business volume, market volatility, the employment market, managed services and regulatory changes.

For this vendor finance issue, I sought input from a few dozen of my vendor-experienced LinkedIn contacts. Several replied with suggested areas to explore, but none carried the substance required for a full article. Instead, I decided to use their ideas in a compendium of topics relevant to our business.

It is a privilege to render opinions on the pages of a business publication. Over the years, I have stretched that privilege with articles on varying topics. I compared Dexter’s optimistic outlook versus a Chicken Little-like pessimistic view during the early days of the credit crisis. My Andy Rooney-styled piece on what irks me was light and fun — one of my favorites. For several years, my TOP picks articles let me go out on a limb with ridiculous predictions. Even my election 2016 piece received some heated responses from Trump followers who chose to rub it in my face when he emerged as victor.

Valuing the privilege of delivering opinion, I exercise it once again and deliver my view from the trenches of the equipment leasing and finance industry in 2018.

Market Volatility

If watching the nightly news and reading internet newsfeeds were your only activities, you might think the sky is falling. Volatility is the key word — it’s like you lit a cherry bomb that hasn’t gone off. You want to see if you can relight it, but you don’t want it to blow up in your face. Market volatility makes people edgy — afraid to buy and afraid to sell. Most of us just stumble along taking the knocks and the jolts, hoping the good times will soon return. Bull or bear? Who knows? Certainly not me! But the fear and trepidation accompanying this volatility makes people hesitant to act with confidence and clarity. Let’s hope the recent edginess is simply a correction in the bull market, not the beginning of a bear-led downturn.

New Business Volume

Apparently, the somewhat catatonic state created by the volatile markets has not affected the equipment finance and leasing business. New business volume is extremely strong. The Equipment Leasing and Finance Foundation Confidence Index has remained high — hovering in the low 70s — slightly higher year over year. One Monthly Confidence Index survey respondent, Anthony Cracchiolo, president and CEO of U.S. Bank Equipment Finance, said, “We are seeing growth in CAPEX spending across a broad segment of the economy. While some areas are expanding more quickly than others, all are moving in a positive direction. Businesses are more positive than we have seen in over a decade and activity is picking up momentum. The equipment finance industry is healthy and poised to support the expanding economy.”

My company had record volume two out of three months in Q1/18. Backlog is strong, and application growth is soaring. Competition remains stiff, which takes its toll on pricing. Albeit, the first of three or four rate hikes expected this year has started to ease the pricing pain.


The past 10 years have delivered some real highs and lows on the employment front. Readers may remember when I wrote about my buddy whose position was eliminated when he was 62. In 2011, he saw no future employment opportunities in equipment finance. Things have changed significantly since then. Professional recruiters, including bank- or lessor-employed recruiters, approach me on an almost daily basis, frequently on LinkedIn. Other times they call directly about “an exceptional employment opportunity with XYZ Leasing Company.” Our industry has a small town feel to it. Everyone knows each other and is somehow acquainted with everyone else. The incestuous nature of the business leads many people to talk with others about opportunities. Just this morning, a former colleague asked me to provide potential candidates for a business development job at a big bank. Earlier in the week, he asked my opinion of an open position similar to his own at an even bigger bank. Later in the day, another former colleague called to ask what I knew about an open position with one of his competitors and how much I thought the job should pay.

Employment is strong and getting stronger. Despite efforts by the Equipment Leasing and Finance Association and the foundation to recruit young people into our industry, new Gen-Z recruits view fintechs and technology employers as more attractive. Our industry continues to age and is seeing more boomers heading for the retirement door. We need an infusion of new blood now.

Nonetheless, it heightens my spirits when old guys like me are approached about new job opportunities. It makes me feel young again!

Transition to the Pay-For-Use Model

A year ago, I wrote The Uberization of Vendor Finance and suggested traditional vendor program agreements would change markedly and the industry might dispel with the venerable “hell or high water” clause in its lease documentation. Low and behold — neither prognostication has yet come true.

Driven by customer demand, I fully expected lessors, banks and independents would innovate to find ways to create a pay-for-use model, providing the flexibility required by customers. Paul Frechette and Jonathan Fales, directors of The Alta Group, suggested I address this topic.

Managed services transactions provide flexibility and functionality for end-user customers. MSTs can combine hardware, software and services under a single contract, often with a variable payment amount based on usage. While extremely difficult for a bank or independent financial services firm to offer the required flexibility — including potential cancellation risk — captives are believed to be best suited to bear the financial risk of a true pay-per-use offering. However, most parent companies won’t allow the captive to put the company’s balance sheet at risk. Fales believes the “captives’ parents have all the required performance data to make data-driven decisions. Hence they know default risk better than anyone, yet no one (other than the copier captives) have a true pay-per-use offering.” The pay-for-use model will eventually emerge, though perhaps not in the form we envision today. I believe the captives will lead this effort.

Lease Accounting and Tax Changes

David Wiener, managing director for The Alta Group, recommended looking at the short-term and long-term impact of lease accounting and tax changes, including changes in the Alternative Minimum Tax formulation. I am neither qualified nor interested in doing a deep dive on the subject; nevertheless, I offer my two cents.

Years ago, when U.S. and international lease accounting standards were attempting to merge into a universal standard, my company’s CFO told me the new accounting principles would be complex and difficult to conform to, but we would do it because we always adapt to new rules and ways of doing business.

The deadline for adopting new lease accounting standards is January 1, 2019 — less than a year away. According to a Deloitte survey conducted among nearly 4,000 accounting professionals in January 2018, many companies are unprepared, while some expect to rely on existing processes, IT systems and organizational data to meet the new requirements. As my CFO said, we always adapt to new rules.

At the end of 2017, the president signed the Tax Cuts and Jobs Act, which lowered the Federal corporate tax rate from 35% to 21%, effective after December 31, 2017. For most bank lessors with a December 31 fiscal year end, the new tax rate was fully effective January 1, 2018. For several captive lessors, including Cisco, Dell, HP Enterprises and Oracle, which were already into their fiscal year 2018, their tax rate will be a blend of 2017 and 2018 rates until they begin their fiscal year 2019. Lower tax rates combined with 100% bonus depreciation may lead to fewer leases and more loans in the coming years. Reduced tax benefits coupled with the increased value of bonus depreciation may influence buyers to choose ownership over rental or leasing, although the 30% limitation on interest expense included in the new bill may reverse this trend for some lessees. Lessors with tax appetite may see an increased interest in tax leases later in the year when companies begin to hit the 30% limit.

When Will the Next Shoe Drop?

Finally, I received an interesting note from Mike Jones, president of Business Capital at CIT Bank. It began by addressing market volatility and a sense of reservation, tentativeness and uncertainty about the future. Jones pointed out the U.S. is experiencing the longest post-war economic recovery in history — but we all know it has to end at some point. He noted the last three recessions can be attributable to the Savings & Loan fiasco, the Federal Reserve Bank’s monetary policy and the hideous investment banking mistakes in mortgage-backed securities. So what’s next? Jones’ conjecture: “Could it be the trillions of dollars of shadow banking investments? With the U.S. making up more than 30% of that world and a large part of that tied up in real estate investments — could there be yet another bubble?” Jones added he hopes we are both retired by the time the next shoe drops — but he isn’t betting on it.

So that’s my snapshot of where we stand at the end of Q1/18. Despite the rather somber closing, assuming an economic downturn is imminent, I remain highly optimistic about the future of the economy and the future of the equipment finance and leasing business. I hope you agree, but as always, please feel free to share your opinion with me at

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