For more than a decade, the commercial equipment finance and leasing industry has enjoyed low interest rates and more importantly, easy access to multiple sources of unlimited capital. Over the past year, the industry has navigated rising interest rates relatively successfully. The market continues to adjust to higher yields. (Industry participants, end-users, vendors, and other stakeholders have altered their expectations to match market conditions.) Twenty-twenty-three is quickly being defined by participant's access to capital and competition for reliable funds. The supply of funds (both internal and external funds) is becoming more competitive. Sources of capital are reallocating their capital to higher quality assets with yields that fully align with current economic conditions. Management and origination teams are pivoting from a decade-long obsession on extreme growth to a focus on controlled growth with the highest quality assets which protect long-term sustainability and profitability. For veterans in the industry, the current flight to quality and the limitations on capital (liquidity) is no surprise and, to a greater extent, has been fully expected. Savvy teams are adjusting to turn potential challenges into greater opportunities.

The current sentiment is summarized below:

• Currently, activity remains strong, and the availability of funds remain for quality transactions. Credit requirements continue to tighten; but originators are still winning, approving, and funding the majority of their transactions.
• Executive teams and owners have concerns related to access to internal and external capital in 2023. They are cautiously optimistic.
• There are a few cracks in portfolio performance, but delinquencies are still well within historical standards. Companies are increasing their collection efforts and taking more aggressive actions earlier in the collection process.
• There is a race to quality - quality transactions, quality relationships, quality talent.
• There is a market pivot in process. Vendors and end-users are placing less emphasis on the lowest yields. They are focusing on partners that can to deliver an approval with the greatest, immediate cash flow savings. Structure matters.
• Originators with financial analysis and structuring skills have a powerful competitive advantage in today's market. Well-rounded professionals are capturing additional market share.

Significant funding remains available for the strongest assets; however, the supply of money is quickly avoiding lesser quality assets, sub-par yields, or riskier collateral. Transactions are once again being viewed as investments which need to provide significant returns for the assumed risk.

The broad tightening of money supply and credit requirements are affecting every participant in the industry. The reality is that many of these changes will make the industry stronger and force participants at every level to embrace their fiduciary responsibilities. Participants must be encouraged to work smarter rather than longer. Participants must be willing to move beyond an application-only environment and add value to every opportunity. Participants will need to be aware of challenges in order to focus on new opportunities which align with their current capabilities. Participants that embrace change and provide value-added, superior services will thrive while commodity driven order-takers will be quickly diminished.

Wheeler Business Consulting is working closely with management teams to reaffirm their strategic statements; and to train their sales and operational teams for success in 2023 and beyond. Developing an internal team aligned with a client's strategy increases short-term outcomes and profitability while improving a client's long-term market value. Sales teams are focused on controlled growth with the highest quality transactions which can be approved, won, and funded.