A few posts ago I mentioned that we had an equipment financing portfolio, and that the term would be fodder for a future blog post. Well here we are – let me explain what I mean by “equipment financing portfolio”.
The truth is, every equipment financing company has an equipment financing portfolio. That’s because an equipment financing portfolio (maybe to save my fingers from typing, I’ll just call it an EFP from now on) is essentially all of your equipment financing contracts. Just like you have a portfolio of stocks, we have a portfolio of equipment financing investments. Make sense?
So I’m not revealing anything earth shaking here – taken as a whole, when we make reference to our EFP, it is nothing more than viewing all of our equipment financing deals in aggregate. The “investment” is the money we lent, the “growth” is the (low) interest we charge on our equipment loans and leases, and the “performance” is the overall repayment vs. default ratio. Simple, right?
So what can we do with our EFP? Well, the most useful thing is to get a few people who are good at analyzing things to look at the EFP and discover trends. For example, my last two posts were about what’s hot and what’s not in equipment financing. We get these things from analyzing our portfolio. It’s not enough to say “this industry isn’t borrowing as much as it once did”. While that might be useful, it’s also obvious (heck, for a time, nobody was borrowing).
With the EFP, we can look deeper and say “this industry’s payment trends seem to be getting slower…” And once we start looking deeper, the (boring) analysts will say “ok, let’s look at repayment vs. time in business” or “let’s combine time in business with certain industries and see what it says”. Then they can really cut loose and throw all caution into the wind by combining time in business with industry with customer’s industries and a CEO named Marvin…” can you see why I find them boring?
But seriously, boring or not, the data crunched from an EFP can help us make decisions on who we should target for equipment financing, and which industries may command a lower interest rate because of solid repayment trends.
I hope you found this little definition interesting. And please, no e-mail about me (who gets all excited about Section 179) calling anyone else boring. I already know I’m a walking contradiction!