Balanced partnerships overcome high interest rate challenges
Hello, and welcome to the dig. Join equipment finance news editors as they connect with leaders in the equipment finance industry on both the lender and dealer sides of the table to discuss new developments, market analysis, trends, tips, and more. We aim to create more productive dynamics between lenders and dealers to make the industry stronger and more profitable. This podcast will help take the industry and you to better results. I am Johnny Martinez, senior associate editor of Equipment Finance News.
Johnnie Martinez:Equipment Finance News is the one publication for both dealers and lenders filling a critical gap in the market. Find us at equipmentfinancenews.com. Welcome to The Dig. Today, I am pleased to be speaking with Brian Rosa, president of commercial finance at Mitsubishi HC Capital America.
Johnnie Martinez:When you start evaluating partnerships for for Mitsubishi HC Capital America, what are some of the things you look for?
Brian Rosa:Yeah. It's a good question. So it it depends on the partnership type and and we have probably various partnership types across the organization as it relates to the different businesses within MHCA. But, you know, within commercial finance, we're generally looking for partners that have a good track record of execution and and where there's basically strong mutual trust. I I don't know that we would consider a partner a partner unless we have some kind of, like, historical track record with them.
Brian Rosa:You know, generally, both companies, goals and objectives need to be aligned, and it's also important that the kind of the benefits derived from the partnership are equitable for each party. I I don't think I've seen too many partnerships where, you know, one party is getting considerably more benefit than the other. Those partnerships typically just don't work out in the long term, so we kinda wanna make sure we're aligned and we're each kinda getting equal benefits. It's kinda also important that our partners are complementary in the expertise or services offered. You know, for example, in commercial finance, we commonly partner with other lenders on large ticket transactions, and we'll we'll we'll partner with firms who have probably a similar risk appetite with us, but, you know, we may not have the same expertise in a particular sector asset type and and so we're leveraging, you know, them as a partner and their expertise.
Brian Rosa:On the flip side, our partners look to us to leverage the underwriting and origination expertise that we have in our core verticals. And by partnering together, you know, we can provide a more comprehensive solution to our customers, which often comes in the form of, you know, increased capital or a more tailored solution to meet their specific needs. Just generally speaking at MHA, we're we're very fortunate and you've probably seen this, you know, in in various press releases, but we're fortunate to have strong partnerships kind of across the whole spectrum and that includes end users of equipment, OEMs, distributors, lenders, resellers, and other service providers. So we're touching kind of all parts of the market and really, you know, view we take the view that we have a lot of meaningful partnerships across the whole industry.
Johnnie Martinez:What is your current evaluation or your evaluation of the current state of the commercial finance industry?
Brian Rosa:Yeah. I mean, I I probably answered this, similarly last time we talked and maybe I'm half glass, full, but, you know, I think the commercial finance industry remains healthy and robust. We've seen higher interest rates, since probably 2022. During that time, you know, there there continue to be a lot of great opportunities for both lenders and borrowers. We feel the same right now.
Brian Rosa:Lenders have benefited from some of the disruption in the market over the last several months. Regional banks namely have pulled back or some exiting the market, which, you know, has turned out to offer opportunities for us. On the flip side, you know, you would think maybe some borrowers don't have access, to money, and they certainly maybe don't have access to the ultra low interest rates that were more commonplace prior to 2022. But for them, there still remains a multitude of options to address their capital needs. The gap that was caused by maybe some of the banks exiting the market has, I think, more than adequately been filled, by independence like MHCA.
Johnnie Martinez:Gotcha. And you you you touched on both the the interest rates and the the banks that have leaving the market. How how does that start factoring into sort of the partnership process or really when you start having those conversations with with other lenders that you guys work with in terms of just you you've gotta have stability around you. Right? To to really have successful operations.
Brian Rosa:Yeah. Well, yeah. Exactly. And, you know, so it it does factor into it. And as I mentioned earlier, we want to align ourselves with partners with whom we know we can execute.
Brian Rosa:You know, delivery and execution of solutions are what is most critical to our customers. The best partnerships, that we have are those in which both parties know they can rely on one another through various business cycles. The higher interest rates coupled with inflation have definitely created challenges for for many companies and it's led to some volatility in certain sectors. So when we partner with someone, we we want to know we'll be able to count on them just as that they would expect to to account on us through through the ups and downs. So it's something that we definitely evaluate.
Johnnie Martinez:Mitsubishi, HC Capital America, as you talked about earlier, You know, you operate in several sectors. You mentioned there's volatility in some of the sectors. Kinda what what are you seeing in terms of China growth or decline both in terms of, you know, who you guys are working with but also just where you guys are are lending?
Brian Rosa:Yeah. I'll focus on the growth, and we've definitely seen substantial growth in the technology space, specifically as it relates to data centers and the demand for increased computing needs to support artificial intelligence growth. I'm sure you've seen that, you know, all over the press but we're seeing a lot of opportunities there. We're also continue to be very strong in clean energy, and are seeing increased demand for battery storage, in in other projects. We've expanded our partner base in the clean energy sector to to address market demand and make sure we're well positioned for the future.
Brian Rosa:We've also seen, growth in our asset management partnerships and transportation, construction, and material handling. Now that the supply chain disruptions caused by the pandemic have largely subsided, new equipment deliveries have increased, creating more used inventory on the market. As an asset lessor, we specialize in offering flexible equipment leasing solutions to our customers, And a key ingredient to being successful is to partner with companies that can extract top value for assets in the secondary market. So we're working, you know, with a lot of resellers who have a specific asset knowledge and we can leverage that expertise.
Johnnie Martinez:The secondary market specifically is that, you know, are we are we kind of expecting to to to kinda continue to see that be a sort of a a place of of strength for you guys?
Brian Rosa:Yeah. I mean, we have we have strong asset expertise in house with a lot of people on staff who who know how to trade equipment in the secondary market and have access to to channels to to sell equipment and, I guess, just have that expertise that allows us what it really does is gives us the the ability to offer a better leasing solution to our customers. You know, customers are typically looking for flexibility, maybe lower lease payments. And if we can take ownership of that equipment and feel comfortable selling that equipment when it comes back to us at end of lease, it means it it it allows us to offer a better product to our customers.
Johnnie Martinez:You mentioned there as well the the flexibility aspect to it. Right? So, you know, as a as a non bank, non captive finance lender, right, how much does that kinda add to the flexibility? How much does that work into your guys' operations?
Brian Rosa:Yeah. It absolutely adds a lot. And I would say, kinda being a non bank, non captive generally allows us to be more nimble and creative in offering solutions to our customers. In in my group, MHCA's commercial finance group, our main value prop is our ability to to execute larger ticket customized transactions that suit customers' unique needs, and they they definitely have a lot of unique needs. It's not a cookie cutter approach, and it means we need to be more flexible on how we structure and manage risk, you know, which base you know, if you're a non bank and non captive like us, we have the flexibility to do that.
Brian Rosa:A more heavily regulated institution may not have that same capability.
Johnnie Martinez:Right. Okay. No. That that makes a a ton of sense. And, you know, as we sort of trend transition the the rest of the the year, right, that that flexibility may may come into handy.
Johnnie Martinez:I don't know your your expectations sort of on the the market as we start working into the rest of of this year.
Brian Rosa:Yeah. Sure. So as you know, we're in an election year. Just, enjoyed the debate last night. So I think in, like, most election years, I I I think people are approaching the remainder of 2024 with a bit of caution.
Brian Rosa:Although, I do think it's cautious optimism. In regard to the economy, it seems like a soft landing is is realistic. Perhaps we've dodged any type of major recession, knock on wood. We know companies and we're seeing it are still spending on CapEx and large projects. We know our deal pipeline is strong and we're continuing to see good opportunities in the market.
Brian Rosa:So we generally have a positive outlook. And I, you know, saw where the equipment finance confidence index increased considerably in August. So it seems like other lenders feel similarly optimistic, but we'll just kinda have to see how the rest of the year plays out.
Johnnie Martinez:Right. And then and to your point earlier, right, with with MHA's operations, you guys get to sort of peek in all the different necks of the woods and sort of see what's what's happening and where things are are going in in that regard.
Brian Rosa:Yep.
Johnnie Martinez:Okay. I would guess with with that factored in, you know, obviously, the the election year is going to have some then, like, on the the cautious optimism component to it. But is there any specific trends we should be be watching beyond what's happening in the election? Any industries we should be watching out for for the the next few months or even into early next year?
Brian Rosa:Yeah. I mean, I I think we're what we're seeing from, I guess, from an equipment sector standpoint, you know, key areas of growth. I mentioned it before was was artificial intelligence, AI. From an equipment standpoint, that means, graphic processing units. We're seeing growth in automation.
Brian Rosa:So, you know, we see a lot more requests for large scale automation projects. So that's a trend that I think is gonna continue on for the next several months years. And then also, you know, robotics, automation, AI, big things right now, a lot of dollars being invested in it. From a product standpoint, I think there's gonna be a continued increase in demand for as a service solutions, in in major in in many of the the larger ticket, financing opportunities that we're seeing right now, customers are requesting an as a service or usage based solution, you know, especially as interest rates are higher and they're looking for ways to really maximize their dollar and not overspend, as a service or usage based solution are are are great, options to have. It's an area where we have strong expertise, in an established product already.
Brian Rosa:We feel like we're a leader due to our deal structuring and equipment asset management capabilities. So, you know, as a service, as a trend, definitely something we're focused on and I think we're, you know, we're well placed.
Johnnie Martinez:Yeah. To your point, I I think I remember the the very first time we spoke we spoke a bit about as a service. And I've just seen in in the industry over the past several years, we've covered it a few different times on Equine Finance News. Just how much that as a service balloon has has kind of gone over the last, you know, year and a half.
Brian Rosa:Yeah. It's massive. And I would say, you know, as a service has been talked about a lot over the years. And I think, you know, in the early years, it was just kind of talked about. Now we're actually seeing, you know, I would say real transactions in a in a true demand for it now.
Brian Rosa:So it's good that we're well placed to take advantage of it. We kinda have all the key components, like I said, from a structuring standpoint and also asset management because, like I mentioned before, key part to equipment as a service, you know, is taking into account that customer may be returning equipment. And because we have strong asset management capabilities, we're, you know, we're well placed to do those deals.
Johnnie Martinez:Gotcha. Okay. Well, with all that in mind, the only question I have left would be, is there anything else you feel readers of Equipment Finance News should know about Mitsubishi, HC Capital America and the company's approach to the partnerships or just in general about the company?
Brian Rosa:Yeah. I mean, just, touching on the on the partnership note. I mean, we value all all our partnerships. We we vet our partners very carefully and we know they do the same to us. You know, a successful partnership in our view is keys or interest alignment, trust, and execution ability.
Brian Rosa:We are selective who we partner with and we want all our partnerships to be meaningful and mutually beneficial. Creating strong partnerships has has been a key to MHCA success. It's gotten us to where we are today, and it will continue to be a critical focus area for us in the future. So we again, we value all our partners and wanna continue expanding those partnerships.
Johnnie Martinez:Alright. Well, that all sounds great and yet. Thank you so much for your time today,
Johnnie Martinez:and I look forward to speaking with you again soon. Thank you for joining us on The DIG, a product of Equipment Finance News. In addition to The DIG, Equipment Finance News also hosts an annual equipment finance conference called Equipment Finance Connect, where dealers and lenders gather to network and connect around financing opportunities. We also host a lender directory, which uses a selection of equipment lenders to help dealers find the solutions they need. Listeners can access Equipment Finance News, The Dig Podcast, Equipment Finance Connect, and the lender directory at Equipment Finance News.
Johnnie Martinez:Thank you again for joining us at The Dig, where we aim to take the industry and you to better results.
