Equipment finance companies are experiencing a rise in lease contract deferrals as their customers request payment relief during the COVID-19 pandemic.
JDR Solutions Inc., a portfolio management service provider, handled multiple contract modifications for its lessor clients in April, the first full month of pandemic-influenced markets. The trend is continuing in May.
Every lessor’s deferral activity is different, but among JDR clients payment extensions are running from about 3.5 percent to 14 percent of their portfolios. One client reported they had never received a deferral request before the pandemic.
JDR manages more than 60,000 contracts for banks, captives and independent financial institutions. The contracts represent 1.2 million assets ranging from office machines to rail cars to corporate jets.
“Many people have lost their jobs during this coronavirus pandemic and are unable to make their monthly lease payments,” said John Schaffner, JDR Vice President and Board of Directors Chairman. “They are asking lenders if they can delay payments. Lenders are working with them on partial or full payment deferrals, which our portfolio administrators then adjust in those accounts.”
A typical deferral is three months on a standard 36- or 60-month lease contract, although some deferrals can be longer, Schaffner said. That means a borrower makes a partial payment, or no payment at all, during the deferral period. The interest rate on the adjusted loan can go up or down, but often stays the same.
Lessors prefer deferrals to repossessions to avoid possible revenue loss and being saddled with used equipment, Schaffner said.
“They’re thinking, ‘What is our best option to get repaid?’” he said. “Negotiations take place between the lender and borrower. It’s done on a case-by-case basis.”
Once the new payment terms are finalized, the account is updated to reflect the changes. In most cases JDR’s portfolio administrators can make the necessary changes to a payment schedule within 30 minutes.
In addition to comprehensive portfolio management and back office services, Indianapolis-based JDR Solutions offers consulting, hosting and customer service/collections, and builds customer- and sales staff-centric web portals. It serves clients in North America and the United Kingdom.