Over the past decade, if not longer, the cost of capital has been historically low for participants in the commercial equipment finance and leasing industry. Low cost of capital provides many benefits and can effectively minimize minor indiscretions. With a possible increase in the cost of capital over the next 12 to 24 months those minor indiscretions may be amplified and develop into major challenges for many participants. Savvy equipment finance and leasing participants have already started making adjustments to prepare for a rapid increase in the cost of funds even though their expectations (hopes) remain that increases will be incremental over an extended period of time. Below are just a few topics which are once again being addressed in strategic planning meetings throughout the industry:
Limiting terms - significantly decreasing weighted average terms within a portfolio
Tightening processes and efficiencies now rather than waiting. Minor inefficiencies become major issues when cost of funds suddenly increase.
Match funding
Strengthening relationships with primary banks or funding sources
Explicitly defining structures and pricing models for the long-term sustainability of the company
Having real-time competitive information to monitor changes in the market
Identifying core business profiles and strengthening positions within primary channels before pursuing additional channels.
Many of the above topics are always part of a meaningful strategic discussion; they are being emphasized in 2022. The discussions are not panic driven, but rather, preparatory and necessary. I have spoken to several executives of banks and independent clients over the past few months who are being proactive to ensure their growth continues while being cognitive of a raising interest rate environment. They rightfully foresee possible challenges as a tremendous opportunity as long as they are well positioned in the market, facing their long-term fiduciary responsibility to shareholders and owners, and providing a superior service to both end-users and vendors.
Wheeler Business Consulting works with banks, independents, captives, origination companies, and investors in the equipment leasing and finance arena. We provide training, strategic planning, and acquisition services. Scott Wheeler is available to discuss your long-term strategy, to assist your staff to maximize outcomes, and to better position your organization in the market.
Comments, questions and suggestions regarding are welcome.