With the equipment finance market expected to surpass $1.4 trillion in 2025, lenders are forming new strategies to strike a balance between portfolio growth and risk management.
The equipment finance industry is projected to grow 2.4% in 2025 and 7.3% over the next three years to nearly $1.5 trillion, according to an October report by the Equipment Leasing and Finance Foundation (ELFF). More than 40% of roughly 600 businesses plan to increase their equipment and software acquisitions next year. Of those, 44% expect to ramp up investment activity by 51% or more.
But while charge-offs fell to their lowest mark in nearly two years in October, 30-plus-days delinquencies have been hovering above 2% for most of this year, according to ELFF. Thus, equipment lenders must stay disciplined in their underwriting to ensure quality loans amid increased growth, Mark French, president at Atlanta-based Crest Capital, told Equipment Finance News.
“As equipment finance demand rises in 2025, balancing growth and quality will require staying disciplined in our approach to risk management — maintaining diligent credit assessments, robust monitoring and proper collection and servicing even during periods of high demand,” he said.
“Growth matters, but never at the expense of the asset quality we’ve worked hard to build.”
Mark French, Crest Capital
While expected lower interest rates next year will open more opportunities for lenders to refinance and increase capital, French said his firm will manage portfolio risk by “maintaining high underwriting standards and leveraging our hard-collateral expertise.”
AI bolsters portfolio balance
Technology, including AI, can also help equipment financiers identify quality growth opportunities and high-risk borrowers, Jody Ray, relationship manager at Chicago-based BMO Bank, told EFN.
“Every deal submitted to us, large or small dollar, is measured for risk.”
Jody Ray, BMO Bank
“We look at the obvious things like credit, revenue, time in business, etc.,” he said. “However, we also measure risk utilizing AI and automated processes behind the scenes for things like Know Your Customer compliance and Patriot Act compliance.”
The Patriot Act requires financial institutions to collect, verify and record information that identifies every person who opens or changes an account.
Combining human expertise with technology allows lenders to “make the correct call for our risk appetite” when evaluating prospective borrowers, Ray said.
Separating sales, underwriting
For some lenders, the key to a healthy portfolio is separating loan growth and management into different segments of their finance operations, Kevin O’Connor, sales director at Northbrook, Ill.-based Beacon Funding, told EFN.
“The underwriting team, the credit team, they need to stick to their principles and what they do,” he said. “The sales team is going to be pushing the envelope. But the way to balance all that is good communication so the sales team can understand — here’s our credit box and here’s what we’re looking for and why.”
The third annual Equipment Finance Connect at the JW Marriott Nashville in Nashville, Tenn., on May 14-15, 2025, is the only event that brings together equipment dealers and lenders to share insights, attend discussions on crucial industry topics and network with peers. Learn more about the event and register here.
