On Tuesday, May 26, Monitor hosted its second Live+ conference in the three-part series, “Asking the C Suite: What’s Next for Equipment Finance?” The virtual event sought answers from a group of industry professionals to gain a better understanding of how equipment finance companies are responding to the pandemic.

Vince Belcastro, group head of Syndications in Element Fleet Management served as the moderator of the conference. Panelists included John Deane, CEO of The Alta Group, Robert Boyer, president of BB&T Commercial Equipment Finance, Terey Jennings, president of Financial Pacific Leasing and Tom Ware, president of Tom Ware Advisory Services, LLC.

Key Takeaways:

1. The pandemic has impacted every industry.

Discussing industries are holding up during the pandemic, Jennings said, “The high-level takeaway from industry analysis is how this pandemic has impacted every industry to some degree.” One sector Jennings has seen on the positive side currently is automotive repair.

Deane said the current situation falls in the pattern of a 20-year cycle. However, how each business is affected can vary — some may see a great drop in performance, whereas others are near normal. Boyer emphasized the importance of asking his customers questions to get a better understanding on the risk, as well as looking at factors such as the geographic locations when making decisions.

2. Deferral requests offer insight.
   Boyer noted that during the peak of uncertainty throughout the country, it seemed as though many customers were requesting relief from lenders, however, as government support, such as the Payment Protection Program (PPP), started to roll out, some customers no longer wanted to wait out the deferral period.

Ware noted the information these requests can provide when it comes to decisioning: “People are getting away from auto decisioning,” he said. “What you can do is build a model based on the information you have on whose requesting referrals.” Ware cautioned on focusing primarily on a state’s open status and suggested evaluating population density.

3. Exploring the potential of a modeling change to assist in credit approvals.

Deane spoke about determining if remodeling an entire business structure is appropriate for the industry. He said the challenge to building new models is that there must be defaults, as well as incorporating aspects such as unemployment. Deane cited that one question The Alta Group is getting from customers is, “a negative what-if” in which businesses ask what they must do to ensure they are still standing when recovery starts. Dean noted there is no one size fits all approach to this. Some companies may need additional equity to support its balance sheet.

4. New Business Volume Remains Strong.

While neither Boyer nor Jennings have made any sort of adjustments to their business model, they have done extensive forecasting on what they expect to see for the year-end budgets. To their surprise, they have found that new business originations are increasing. Boyer offered some of his own theories as to why BB&T is seeing an increase in cap backs, including changes at competitors and conventional banks lacking capacity.

Whether the uptick in volume will last is difficult to predict, especially with the potential for a second wave in the virus. “It is unfortunate that we need to be in more of a reactive position that a strategic one,” Boyer said.

5. Keeping the same payment is the most common relief request.

Both Boyer and Ware indicated that borrowers want to keep their payments the same, which has led to recapping remaining payment streams and/or making one lump sum payment at the end of a term.

With the load of administrative work in deferrals, many lenders have not had time to consider a contingency plan if a second wave were to happen. For Jennings, he thinks of the second wave not necessarily in terms of the virus, but the deferral processes. Many businesses will not be healthy enough to make payments following the end of their three-month deferral period and will need an extension to six months.

6. The industry will see some changes and opportunities.

Deane and Ware have learned from their clients that the result of the virus is two-fold, some found their business activity held up, while others have experienced the worst.

“This is the ultimate proof that every recession is different,” Ware said. “In general, this is a whole lot of change and change does create opportunity.”

7. The next six months calls for a “Circle the Wagons” strategy.

Looking ahead at the next six months, Ware expressed concern over what will come after the first 90 days of deferrals. Deane suggested a “circle the wagons” strategy. Since we don’t know how bad the environment will become, letting go of C and D spaces will allow lenders to reduce the number of targets and hold on to ammunition.

Jennings suggested gauging each customer’s unique situation and ability to move forward by having good conversations as everyone limps their way out of the current climate. Boyer believes a number of businesses will be faced with the decision to shutter, and Ware predicted an increase in consumer spending following a psychological boost the vaccine will bring.

8. Margins and spreads are better across the board.

Boyer and Jennings noted that rates have increased based on risk factors. Ware expected spreads to increase for a while, even if the cost of funds is down. Clients have told Deane they are seeing better margins and spreads across the board, which is expected to continue.

Don’t miss the third and final installment of Monitor Live+ Asking the C-Suite on Thursday, June 1 at noon. Register now!