Wheeler Business Consulting:
As we enter the third quarter, economic uncertainty remains. Management teams throughout the commercial equipment leasing and finance industry are planning for different scenarios including: a best-case scenario, a
worst-case scenario, and what they perceive to be a probable scenario. The reality is that no one knows what will come next and every company needs to have the ability to react to various situations in a very fluid and volatile economic environment.
Based upon history there are two main concerns:
Portfolio performance: To date, delinquencies have increased. Most companies have found the increases to be manageable and many management teams are pleasantly surprised by the overall resiliency of their portfolios. However, conventional wisdom indicates that commercial clients, and their ability to meet financial obligations, have been greatly assisted by government programs (PPP funds, delayed tax payments, etc.) and deferred payment programs provided by landlords, suppliers, and lenders. What will happen when these programs end? Will there be additional stimulus programs in August and September, before the election? Will delinquencies spike further? What percentage of clients that took advantage of deferred payment programs will be able to resume full payments? Or will the economy snap back faster than expected and the entire pandemic and its impact be strictly a blip on the screen, forgotten within months?
The economic shutdown affected every business sector, including the commercial equipment leasing and finance industry. Most participants entered the pandemic in good financial positions with strong portfolio performance, origination models, and balance sheets. Access to capital through investors, bank lines, funding partners, etc. was historically strong for the five years leading up to the economic disruption of Covid-19. However, if overall portfolio performance for the industry deteriorates, all participants will be faced with additional pressures to secure capital. Liquidity and access to capital is and will intensify as a priority for every management team, especially for those companies with weaker balance sheets and/or heavier leverage positions.
Portfolio performance and liquidity are closely tied together. The industry will gain a better understanding of both over the next 90 to 180 days. The good news is that the industry has faced disruption in the past. The industry has shown resilience; it resets and becomes stronger with each new challenge. My expectations are that the current challenges will not be nearly as devastating as some are predicting, nor will the challenges be as easy as others may be hoping for. There will be winners and losers, opportunities and challenges, consolidations and expansions, quick exits and new arrivals. The easy money will vanish and the smart money will thrive. Quality assets are of the greatest value and those that can originate, fund, and manage the highest quality assets will dominate the industry.
Wheeler Business Consulting has been engaged by a name-recognized participant in the industry to purchase portfolios in various equipment and industry niches. If your company is looking to re-balance its internal portfolio and/or sell a portion of, or its entire portfolio contact Scott at 410-877-0428.
Wheeler Business Consulting works with management teams to further develop their talent, to identify and strengthen weak links within their organization, and to improve overall efficiencies.
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 and suggestions are always welcome.
Scott A. Wheeler CLFP
Wheeler Business Consulting LLC