The jury is still out on the long term effects of recent U.S. trade policy changes. In the short term, it seems, more U.S. companies are experiencing negative fallout than positive results. A survey by the National Federation of Independent Businesses, for example, shows U.S. trade policy changes with Mexico, Canada and China are hurting 37% of small companies compared with 5% reporting favorable impacts. A study by the Institute of International Finance indicates Chinese retaliation against tariffs is harming U.S. exporters more than their Chinese counterparts, “leading to a collapse in many of the roughly 900 categories of targeted American products,” reports Fortunemagazine.
Fallout from new trade policies also bears watching in the equipment leasing and finance industry, observe Paul Bentand Joe Nachbinof The Alta Group in the latest issue of the Monitor. Potential trade wars are among a number of industry risks in 2019 that the authors discuss in their article, “Are You Prepared for a New Year of Risk?”
“If your primary customer base relies heavily on international imports of equipment, machinery or durable goods you are no doubt concerned about the impact of higher tariffs, duties, and cross-border taxes on your customers’ willingness to acquire greater volumes of assets,” they write. “And even if you are not affected directly by cross-border matters, the indirect effects on the U.S. supply chain and the overall market pricing of asset financing and financial products is something you still must consider in this context.
Other risks to monitor this year include increased competition from fintechs, economic uncertainties, interest rate hikes and legislative changes.
Why worry when so many positive indicators abound in the equipment finance industry, including growing business volumes? Assessing real and potential risks is not idle worry – it’s smart business strategy. “Prepare for the worst, plan for the best” remains sound advice.
To identify major risks this year and provide initial guidance for business leaders, Paul and Joe teamed up on the article. Paulis a senior managing director, attorney and head of Alta’s Business Quality Assurance and Legal Services practices. Joeis a director who specializes in operations review, strategic planning and vendor finance.
Their commentary can help your company manage risks and, in some cases, even turn them into competitive advantages. The following are just a few excerpts from the Monitorarticle, which provides a more in-depth discussion.
One of the biggest risks facing traditional equipment leasing and finance companies in the coming year is increased competition from fintech providers, the article concludes. Typically, fintechs operate with streamlined underwriting, documentation, and funding processes, using highly automated methods of doing business. “Traditional funding companies are well advised to learn more about their competitors in this area and to begin (if they haven’t done so already) to adopt practices and policies that are designed to remain competitive in pricing and servicing,” the article notes.
Equipment finance providers should also pay close attention to tax-related laws and regulations in the year ahead. “Continuing legislative changes in the U.S. Tax Code and consequent regulatory pronouncements and requirements following 2017’s tax overhaul will require on-going vigilance in transaction pricing, documentation and even sales practices, as customers will be asking more questions and demanding more accommodations from financing companies in an effort to cope with their own tax issues,” write the authors. Additionally, certain high tax state and local laws and regulations may be modified in 2019.
Ongoing monitoring is advised as well for significant changes in interest rates. “If it seems that interest rates are likely to continue rising, is this a good time to focus on securitization of receivables and other vehicles by which current long-term rates may be locked in for future funding? Conversely, if it appears that rates are likely to continue fluctuating in the near term, should floating rate funding vehicles (and perhaps even floating rate customer transactions) be instituted as a way to hedge both your revenue streams and your funding costs?” the authors add.
Of course, general economic conditions and changes in financial markets should always inform equipment finance strategies and this year is no different.
“The overall state of the U.S. economy must also be closely watched, regardless of your specific industry or customer relationships, because credit underwriting guidelines and your ability to find funding for transactions will certainly be affected (whether directly or indirectly) by any overall slowdown or speedup of the economy,” the authors explain. “…Staying well informed and a step ahead of shifts in this volatile financial market would be a good course of action for the coming year.”
Their big picture advice for managing risks? Be smart and be flexible.
“Whatever happens in 2019, lessors and financing companies that remain flexible and well informed about economic, tax, regulatory and trade issues will be well served by their continuing review of the markets, and the development of methods and practices which allow them to react quickly to changes,” they recommend.
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