With rising charge-offs in the equipment finance industry and growing concerns in the commercial banking sector, managing non-performing loans and leases (NPLs) becomes paramount. Commercial debt selling offers a strategic solution for such challenges. Dive deep into this finance practice, and learn how it can be advantageous for your business at EquipmentLend.com.
All finance entities, whether in equipment leasing, fintech, or commercial banking, grapple with the challenge of non-performing accounts. The ELFA’s recent report highlighted a surge in charge-offs, underscoring the urgency to address these NPLs. Commercial debt selling, a strategy we’ve championed for a quarter-century, emerges as a vital tool in this landscape.
Why Opt for Commercial Debt Selling?
Lenders and lessors often find themselves wrestling with unyielding accounts. Selling off such debt presents three significant benefits:
- Immediate Cash Flow: Selling enables an instant cash infusion, essential in fluctuating markets. This can bolster revenue-centric business areas. With consistent dealings with a debt buyer, predictable returns at closing supersede uncertain future gains.
- Operational Efficiency: Redirecting staff efforts towards earlier dues results in higher recovery rates and a shorter collection cycle.
- Manage Rising Defaults: Offloading matured commercial debt allows for better workload management, especially when defaults spike.
What Constitutes Sellable Commercial Debt?
Debt sales typically involve pools of non-performing commercial accounts, which can vary in size and age (up to four years from the last payment, in many cases). This could encompass loans, equipment leases, credit lines, commercial credit cards, or merchant cash advances. They could be secured or unsecured, with or without personal guarantees.
Deciding What to Sell and When
Lenders and lessors might opt to sell all non-performing accounts upon charge-off, while others may base the decision on specific criteria like geography or balance. The optimal time often coincides with the charge-off phase, after exhaustive internal efforts.
The Selling Procedure
Initiating a sale involves approaching potential buyers with basic account details. Following a non-disclosure agreement, the buyer assesses the accounts and quotes a price. An agreement is drawn upon mutual consent, and payment is wired. Long-term partnerships may allow for expedited online transactions, enabling regular sales.
Setting the Right Price
Reliable pricing stems from historical data and reflects the assets’ market value. While sellers seek the best deals, EquipmentLend.com advises caution against exceedingly high offers. It’s essential to partner with reputable buyers known for transparency and prompt payments.
Post-Sale Account Management
Once sold, trustworthy buyers will engage professionally and considerately with debtors. They operate under their company name and aim for a constructive interaction. Typically, these accounts aren’t resold, but if mistakenly sold, they can be repurchased by the seller.
For further insights into commercial debt selling and other finance-related topics, visit EquipmentLend.com.
