SFNet Releases ABL Q2 and Factoring Mid-Year Reports

Asset-Based Lending Deal Activity Surged in Q2

Secured Finance Network releases survey results for bank and non-bank lenders

NEW YORK, NY, September 27, 2024 ─ Cautious optimism marked the second quarter in the asset-based lending market as banks and other lenders saw a rise in new-deal activity, according to data released by the Secured Finance Network. They continued to monitor signs of cooling in the U.S. economy, however, including a contraction in the manufacturing sector.

SFNet surveyed bank and non-bank asset-based lenders (ABLs) on key indicators for its quarterly Asset-Based Lending Index and SFNet Confidence Index.

“Portfolios are generally healthy by historical standards, and the ABL industry is ready to meet new demand in Q3 and beyond as borrowing costs begin to fall,” said SFNet CEO Richard D. Gumbrecht.

Asset-based lenders continue their hope of a soft landing for the U.S. economy, the report said. But the Lender Confidence Index for last quarter showed modest declines among banks and non-banks amid lingering economic pressures. Bank expectations dipped for business demand but improved for client utilization, and both lender groups remained focused on portfolio performance “as weaker loans cycle through portfolios,” the report said.

As inflation eased, job growth was moderate and unemployment trended down in the second quarter. Most lenders said they expected business conditions to stay the same over the next quarter.  

Survey highlights

For banks, asset-based loan commitments (total committed credit lines) were mostly unchanged in the second quarter. It was the same for outstandings (total asset-based loans outstanding).

“Deal activity surged this quarter, with notable (quarterly) increases in new commitments with new clients (+89%), but commitment runoff also increased (+69%),” the report said.

Net commitments spiked from $270 million to $728 million. Also up significantly were new outstandings and outstandings runoff.

Banks reported more extensions or expansions with existing clients than deals with new clients in the second quarter. However, the new client deals were larger on average than those with existing clients.

“Continuing a long-standing trend, the vast majority of total commitments came from revolver loans,” the report said.

Non-banks, meanwhile, saw slightly stronger but still modest growth for total commitments, up just 1.5%, and total outstandings inched up 2.9%. They reported more new deals than banks, with new commitments with new clients jumping 253% over the previous quarter. Commitment runoff fell 19%, and net commitments were solidly positive with an increase of $473.5 million in the second quarter.

New outstandings spiked 196%, while outstandings runoff fell by 12%. That led to an increase last quarter of more than $314 million in net outstandings.

“Non-banks reported more deals this quarter with new clients than expansions or extensions with existing clients,” the report said. “As in past quarters, the vast majority of total commitments among non-bank lenders came from revolver loans. The proportion of total commitments held in revolver loans remained essentially flat.”

In terms of credit-line utilization rates, both lender groups reported slight increases from the first to second quarters.

“Bank utilization remained below the long-term historical average (39.9%),” the report said, “while non-bank utilization remained above average (48.6%).”

ABL portfolio performance was a mixed bag but still strong in the most recent Lending Index. While it declined for banks, it held within the historical range. Criticized and classified loans were slightly down overall, even though the majority of banks reported an increase in such loans. Non-accruals increased 35% over the previous quarter as more banks reported increases than decreases. Write-offs, meanwhile, were down 35% as a share of outstandings.

Portfolio performance was stronger in the other lender group, the report said.

“Performance generally improved for non-banks, with non-accruals falling 56%. Write-offs were flat for most banks but increased as a share of total outstandings, the report said. “Despite the increase, write-offs remain well below the high point for the past five years.”

Details

For more publicly available information, visit SFNet’s Q2 2024 Asset-Based Lending Index. SFNet members have access to additional data and detailed reporting. Contact your business unit leader or asavaser@sfnet.com to request a copy of your report

For a broader view of ABL trends and this industry, visit SFNet’s Annual Asset-Based Lending Industry Survey for 2023.

About Secured Finance Network

Founded in 1944, the Secured Finance Network (formerly Commercial Finance Association) is an international trade association connecting the interests of companies and professionals who deliver and enable secured financing to businesses. With more than 1,000 member organizations throughout the US, Europe, Canada and around the world, SFNet brings together the people, data, knowledge, tools and insights that put capital to work. For more information, please visit SFNet.com.

Media Contact:

Michele Ocejo, Director of Communications
Secured Finance Network
mocejo@sfnet.com, 212-792-9396

Factors Seem a Bit More Optimistic, As They Expect Boosts in Headcount and Business Demand

Secured Finance Network Publishes Mid-Year Factoring Survey

NEW YORK, NY, September 27, 2024 – Overall healthy factoring demand, while less than anticipated due to weaker spending in key client sectors, suggests that the factoring industry is agile, resilient and open to new business. In line with that, the Secured Finance Network (SFNet) Mid-Year Factoring Survey reports that combined factoring sentiment rose to 68.8 in the first half of 2024, up from 64.8 at the end of 2023. 

Although factors’ expectations for portfolio performance and U.S. business conditions were basically flat, they were improved for employee headcount (+12.5, to 62.5) and new business demand (+6.4, to 79.2). The prevailing industry mood comes against the backdrop of the bulk of economic indicators pointing to a “soft landing” for the economy. Specifically, despite declines in job growth and new orders and a contraction in manufacturing, inflation is falling close to pre-pandemic levels. While the Federal Reserve’s preferred inflation standard was up by a 1.8% annualized rate over the last three months, the Fed recently cut interest rates by 50 basis points, unemployment fell while core retail sales rose in August, and unemployment benefits have been subdued all year.

Factoring is a form of financing where a non-bank lender or bank affiliate − known as a “factor” − purchases the accounts receivable of a client, at a discount. Clients typically are companies involved in textiles, apparel, business services, shipping, transportation and other industries that want to improve cash flow, according to SFNet.

Total volume and client numbers decline

Overall factoring volume dropped 1.9% among respondents reporting volumes in both H1 2023 and H1 2024. As was true for respondents in the second halves of 2022 and 2023, the falloff was greater for international (8.7%) than for U.S. (1.6%) volume. Volume shares per industry remained the same from H2 2023 to H1 2024, with apparel/textiles at the top, accounting for roughly half of all volume (50.3%), and another third split among the automative, business services/staffing, transportation/trucking and electronics industries.

Factoring client totals also were down, by 7.7%, from H12023 to H1 2024, as there were 11.1% fewer U.S. clients but 13.1% more international clients. Even though banks and brokers remain the top referral sources, at almost 45% combined, their share of referrals fell during the past year.

Regional distributions of factoring volume and clients were mostly unchanged throughout last year, but volume and client distribution differed significantly: the Northeast had the highest volume share in H1 2024 (56%), while the Southeast had the highest clients share (26%).

“Non-recourse factoring continued to comprise the bulk of total volume (85.8%) but full recourse factoring still comprises the majority of clients (78.6%),” stated the report. “Non-notification factoring accounted for 56% of all volume in H1 2024, with its share of volume increasing steadily since H2 2022. Notification factoring’s share of clients has held steady in recent years, hovering around 96%.”

Other Key Data

• Total funds in use grew by 5.0% among respondents reporting in H2 2023 and H1 2024, even though 75% of them reported a decline in their funds in use during that period. This suggests a wide variance in demand from factor to factor, despite most factors experiencing a decline. At the same time, average earning assets were off by 0.8%.
• Average return on assets increased to 5.30%, while average return on equity decreased to 6.21%.
• Where portfolio performance is concerned, write-offs as a share of volume were 0.10% in H1 2024, while provisions/allowances for loan loss as a share of volume grew to 0.37%. Factors observe that portfolio performance metrics are stable and healthy by historical standards.
• Factoring revenues fell by 6.4% from H2 2023 to H1 2024, while direct expenses were down by 3.1% over the same period. Since the revenue shrinkage was more than the expenses falloff, the pre-tax income share of volume slid from 0.42 in H1 2023 to 0.30% in H1 2024.
• The number of factoring employees decreased by 5.3% from H2 2023 to H1 2024. That period saw account management and business development headcounts become smaller but the underwriting headcount got bigger.

Details

Follow the link for more publicly available information on the Mid-Year Factoring Survey. SFNet members have access to additional data and detailed reporting. Contact your business unit leader or asavaser@sfnet.com to request a copy of your report

About Secured Finance Network

Founded in 1944, the Secured Finance Network (formerly Commercial Finance Association) is an international trade association connecting the interests of companies and professionals who deliver and enable secured financing to businesses. With more than 1,000 member organizations throughout the US, Europe, Canada and around the world, SFNet brings together the people, data, knowledge, tools, and insights that put capital to work. For more information, please visit SFNet.com.

Media Contact:

Michele Ocejo, Director of Communications
Secured Finance Network
mocejo@sfnet.com, 551-999-5283