Lessons Learned to Develop Today’s Best Practices for Funding

Best Practices Compass

July 20, 2022

Lessons Learned to Develop Today’s Best Practices for Funding was first published by the Equipment Leasing and Finance Foundation in 2022.

Lessons learned from past stresses in financial markets were critical to how the equipment finance and leasing industry weathered global disruptions caused by the COVID 19 pandemic. The knowledge that industry leaders had gained and the best practices they subsequently developed around their funding operations led to better-than-expected performance in recent years.

That’s among the key findings of a major new report released by the Equipment Leasing & Finance Foundation, which commissioned The Alta Group to analyze the pandemic’s impact on the industry in terms of funding, securitization and syndication markets.

It’s a must-read for industry leaders, lenders, borrowers and others looking to benefit from the experience of others as they position themselves for the future.

“The performance of the equipment finance industry was considerably better than feared through the pandemic,” the report found. “Government programs such as the SBA’s Paycheck Protection Program buoyed portfolio performance for many equipment finance companies, helping to minimize delinquency and default figures.”

Supply chain disruptions, meanwhile, paid an “unanticipated dividend” in the form of increased holdover rent due to the lack of new equipment to replace end-of-lease equipment. And the liquidity amassed by businesses as a hedge against future recessions bought time for borrowers to adjust strategies to take advantage of areas of high demand.

“Unlike the Great Recession, the pandemic saw the availability of capital to the equipment finance industry and its clients increase,” according to the report. “Favorable performance by equipment Asset-Backed Securitizations has allowed these markets to remain open despite the economic impact of the pandemic and has attracted new investors to the asset class seeking a safe means to generate favorable returns.

“Also, with lower volume levels during the pandemic, combined with greater cash balances on corporate balance sheets and higher levels of consumer savings, banks had more capital available to lend in an economy where borrowing was already depressed.”

Meanwhile, supply chain issues drove down industry volume levels, with delivery snags causing equipment finance firms to delay transactions pending equipment delivery.

The Alta Group conducted a series of surveys and interviews with members of the Equipment Leasing and Finance Association and lenders to determine the pandemic’s impact on their ability to borrow and the challenges that created for borrowers. The report, titled “Equipment Finance Funding, Securitization & Syndication: Best Practices for Tomorrow,” examined the following:

  • How the pandemic differed from the Great Recession of 2008
  • Funding tools that are available to industry players
  • Emerging funding opportunities such as securitizations, Blockchain-enabled securitizations and ESG.
  • Best practices such as diversification of funding sources and mechanisms; staggered long-term maturity rates; and backup lending facilities

The equipment finance industry has an enduring reputation for resiliency through various financial cycles over the years.

“Funding is, undoubtedly, the lifeblood of equipment finance companies,” the report noted. “Consistent access to both short and long-term financing sources is important to maintain liquidity, especially during periods of economic turmoil. Some 15 years ago, the Great Recession proved the importance of having diversified funding sources and strong lender relationships to navigate tenuous capital market conditions.

“Many … companies applied lessons learned from that crisis toward developing strong best practices around their funding operations. That best practices playbook enabled them to continue financing customers after the COVID-19 pandemic precipitated a pause in the capital markets in March 2020.”

To view the full report, visit Equipment Leasing and Finance Foundation or download the Equipment Finance Funding, Securitization & Syndication: Best Practices for Today and Tomorrow PDF.

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