Are You Ready to Ride the Wave of Unprecedented Credit Uncertainty?

by Ray Ellingsen

Ray Ellingsen is Vice President of Syndication and Operations, Corcentric. He has more than 25 years of experience in the syndication, equipment lease finance and commercial banking industry. At Corcentric he is responsible for growing and maintaining national funding source relationships with complementary valued-added financial institutions and equipment finance organizations, as well as developing customized, customer-focused, life-cycle fleet management financing programs.



Economic uncertainty abounds. Recession, stagflation, inflation, labor shortages, supply chain constraints—not to mention the condition of 401(k)s. Should I go on?

The good news is this storm shall pass, especially if your business and personal finance models anticipate credit cycle eventualities. It will test how well everyone paid attention in the past and what plans will lead us through to the other side.

The hope is that we all studied and learned from previous recessions. After all, the time to plan for the storm is before it happens, not during. This time around, however, there are many new economic challenges making a predictable outcome and timeframe elusive.

The main question to consider: How will the present economic challenges affect the equipment finance industry and sustained equipment capital access availability?

For the equipment finance industry, sustaining readily available equipment finance capital access begins with proven leasing business profitability models, credit assessment and portfolio management, understanding capital market funding requirements, and sound relationships with reliably experienced capital market funding partners.

Countering Evolving Market Complexities

Business models should be designed around market need and sound organizational-offering delivery principles to create, maintain, and promote financial strength growth. Profitability models and related strategic credit-decision influences should balance out to create a scalable, targeted investment return. All models must anticipate, evolve, and adapt to infinite macro- and microeconomic factors influencing business success.

As a great starting point:

  • Develop, grow, and continually incubate differentiated product and service offerings adding strong business value.
  • On the credit side, realistically determine client credit risk tolerance and competitive yield return targets.
  • Apply credit-profile-appropriate transaction pricing, structuring terms, and provisions.
  • Ensure that strategic credit underwriting policies and client assessments conform to transaction types.

Navigating the Credit/Transaction Type Spectrum

The combination of high client-credit risk, deal structuring weakness, and documentation concessions tends to be at high performance risk whether for payment performance and/or default. This is rarely the strategic intent, but competitive pressures and historical evidence suggest short-market participant memories will lead us back to the scene of the crime.

To maintain long-term success, business models require heightened discipline and strict adherence to all deal/credit opportunity facets. It requires disciplined risk/reward management, including the elements of higher yields, credit reserves, shortened terms, concrete documentation, etc.

Leasing models accustomed to pursing strong client-credit profiles, mission-critical equipment, client cost-saving offerings, appropriate lease/asset-life deal terms and provisions, and bulletproof transactional and syndication documentation need to stay in their respective business and credit profile success lanes.

It’s not an easy transition to move down the tougher credit stream. Doing so requires different strategic skillsets. Your team must have credit expertise, proper management skills, appropriate parameters around risk management deal structuring, and a knowledge of documentation complexities surrounding performance covenants, rate grids, and compliance items.

Enduring Uncertainty with Confidence

If your business model has demonstrated historic business-cycle performance success through economic downturns, the financial institutional funding community likely will continue to support lessor capital funding access availability. When your business has proven it can ride the wave, you and your clients will be more confident of receiving funding through all the economic cycle challenges.

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Terry Mulreany
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