Financing Options When Banks Pull Back

Recently, The Monitor released its 2024 Monitor 100 – a look at the state of banking in the equipment finance industry. The report notes that nearly 60% of U.S. bank affiliates pulled back on originations – a pullback not seen from banks since the 2009 Recession when 72% of Monitor 100 bank affiliates reduced their business volume.

Why have banks pulled back?

Over the last year, there are a few emerging themes driving the bank pullback:

• Regional Bank Failures: In 2023, regional bank failures caused depositors to panic and regulators to look at banks with a closer eye. The report notes that with loan-to-deposit ratios under intense scrutiny, banks were forced to review how they were lending money and on what assets. As a result, many made the decision to reduce their equipment finance portfolios and focus more exclusively on bank relationships. Additionally, banks were far more cautious about lending and were far more protective of their deposits.
  
  
  
• Economic Slowdown: Decreasing and fluctuating confidence among the equipment finance industry remains top of mind for equipment finance leaders, with confidence levels ranging from 40.6 in May 2023 to 55.2 in March 2024. The report mentions that ‘reduced clarity on future monetary policy and potentially softer macroeconomic backdrop is likely to remain a constraint on equipment.’
  
• Interest Rate Stress: The report notes that continued high interest rates from the Federal Reserve led to increased margin compression. With persistent high inflation, banks and economists alike will keep an eye on the Fed to see if they will lower rates in 2024.

Why non-banks are poised to step in?

Because banks are regulated by the federal government, they are required to have very thorough policies, procedure and legal requirements that can be time consuming and challenging for companies to navigate. Compared to banks, commercial lenders are more nimble and more flexible with financing options – due to the fact that there are fewer layers of delegation, committees and other aspects.

Commercial lenders can lead the charge when banks pull back on lending. Oftentimes, commercial lenders understand client needs to provide strategic counsel from a knowledgeable team with streamlined operations. Such industry expertise allows commercial lenders to provide innovative solutions to clients in a responsive and timely manner.

Amid the bank pull back, consider working with a lender that’s not a traditional bank. Commercial lenders, like Mitsubishi HC Capital America, offer an alternative to banks with several advantages, including:

• Working quickly for clarity

Whether a business is financially stable or experiencing a period of stress, our clients can expect speed and certainty from our team for expedited loan approval and processing. As a commercial lender, we can work faster with companies on an individual level to provide strategic solutions based on their business model and target customer. Whether its financing new equipment to fulfill a major purchase order or navigating challenges to secure a loan, our team will work swiftly to ensure your team has the working capital you need to execute your vision.

• Remaining flexible amid ambiguity

Amid economic uncertainty and a high interest rate environment, it’s important for organizations to remain flexible and keep options open from a lending perspective. Our clients choose to work with us because they see the value in working with a collaborative partner in a streamlined organization to create a simplified customer experience. Financing in this type of market is not a new challenge to our team, and our lending expertise will help customers remain strong in volatile times.

• Applying our expertise to your unique challenge

Across every successful project and partnership, we find it works to everyone’s advantage when we take time to understand every customer’s business, processes and goals. Only then do we begin to recommend a financial program tailored to their needs. Our knowledgeable team leans on their financing experience to provide customers with a plan to reach their short- and long-term goals.

How should companies navigate this time of change?

As banks continue to pull back on loans in equipment finance, companies should weigh the pros and cons of financing options. Such financing strategies are not "one-size-fits-all" and it takes time to understand the nuance and impact it can have on your business. Consider partnering with a trusted commercial lending partner who can help you decide on how to use financing strategically to help grow your business.