The growing impact of private equity on U.S. equipment finance is undeniable.
Equipment finance businesses, transactions, partnerships and credit platforms backed by private equity are gaining momentum in the industry. This is creating opportunities and challenges for traditional players. Private- equity portfolio companies outside the industry also are having an impact, providing new channels for customer financing.
It’s no wonder that private equity is a hot topic in equipment finance right now. A number of private conversations and conference sessions at recent industry events focused on the latest developments, and I’ve been especially interested in the credit, collections and debt implications for equipment finance.
Here is a brief overview of what I have learned to date through industry sources and personal experiences.
Debt and collections implications
Research from the Equipment Leasing & Finance Foundation indicates that as banks retrenched following the 2023 disruptions, private equity, credit funds and related investors increasingly stepped in to provide capacity — a trend expected to accelerate. This shift is evident in transactions such as MidOcean Partners’ $197.5 million structured equity sale-leaseback investment in EquipmentShare and is echoed by industry leaders in EL&F Magazine, who point to heightened competition and a reshaping of the competitive landscape driven by private capital.
On the debt buying side, private-equity firms have jumped into bidding for large pools of small ticket non-performing claims. They seem to be approaching debt buying as a short-term play for generating a specific return over a 12-month investment. After purchasing debt, the private-equity firms tend to use collection agencies to handle recoveries and then they resell the remaining unpaid accounts to other buyers.
We are seeing changes in the marketplace resulting from this. Currently, the price that is being paid for charged-off debt is well above what was, and what should be, the market price. This is tightening margins. It also is flooding collection agencies with paper since the private-equity firms do not have internal resources to handle the debt themselves. Ultimately, the agencies will work the paper as quickly as possible due to tight margins and will focus most of their efforts on accounts representing the low-hanging fruit.
What are the implications for commercial debt buying and selling in equipment finance?
For now, margins are tighter, and this does not seem sustainable for the type of return that private-equity firms normally value.
Since there is so much capital in the marketplace at present and not enough places to invest it, we believe debt buying is something that private-equity firms are exploring short-term but are unlikely to pursue as a long-term strategy. What is happening now is probably a stint in the cycle, and private-equity firms will eventually find more lucrative ways to invest their capital.
Through it all, TBF’s debt buying services will continue to serve long-standing equipment finance companies, as well as newer private equity-backed businesses. We have purchased deals from several private-equity firms after they have utilized their collection agencies for recoveries. This helps us avoid compressed margins and competing with private equity on initial bids.
Considerations when selling debt
Commercial debt buyers with a long history of success in your industry offer advantages that other debt buyers cannot. Here’s how our company, TBF, manages debt buying in ways that benefit sellers.
TBF buys non-performing equipment leases, commercial bank loans and lines of credit, online small-business loans, merchant cash advances and commercial credit card accounts after they have reached charge-off. Some companies sell all their charge-offs to us, while others sell certain accounts meeting specific criteria.
Key benefits of working with TBF:
- Competitive prices — and immediate cash at closing.
- We pioneered debt buying in equipment finance, are the leading commercial debt buyer in the U.S. and developed a proprietary data-driven, true-market algorithm called MarkTrue to optimize debt pricing.
- Our services also help companies keep internal collections efforts focused on accounts that are earlier in the past-due cycle and more likely to be recovered.
- After selling your commercial debt to TBF, we use a litigation platform that allows the obligated parties to come to the table or challenge the obligation before a judge. This avoids confrontations and harassing phone calls from collectors working on commissions.
- We never resell accounts. Sellers always know how their paper will be handled because our company is transparent with its processes. A seller can always make a request to repurchase a claim it sold in error since the accounts remain under our control.
Browse our website to learn more about our capabilities to assist your business.
I am also available to answer questions you have about commercial debt buying and our services. This includes providing a free, no-obligation price estimate on the pool of commercial accounts you are considering selling if you are with a bank, equipment finance company, online business lender or merchant cash advance business.
Brett Boehm
Brett Boehm is CEO and Co-Founder of TBF, a commercial debt acquisition company that pioneered debt buying in the equipment finance industry. He can be reached at bboehm@tbfgroup.com
