Undue Diligence

By: Barry S. Marks - Founding Shareholder, Marks & Associates, P.C.

I remember the day one of my kids asked what it was like in the Great Depression.  After assuring them I was not that old, I told them to ask their grandparents.  I spent the next few minutes thinking over what it meant to my folks to live in the Great Depression and what scars it left.  The experience of living through hard times taught them lessons that were probably very valuable later in their lives.  They were cautious with money and highly distrustful of any get-rich-quick scheme.  They played the stock market but insisted on a widely diversified portfolio. My mother still chews a half stick of chewing gum at a time.

So what did we learn in the Great Recession?  The often and variously quoted observation by George Santayana that “those who cannot remember the past (or do not learn from history’) are doomed to repeat it” comes to mind.

Already we are seeing app-only deals escalate into the $100,000 and above region.

Turn around times are measured in minutes as back offices are under pressure to move ever faster.

Anything beyond looking at a credit score seems doomed to become undue diligence.

There is money to be made and, as funds begin to flow again (however slowly), the ability to place money at high yields becomes ever more attractive.  The growth of merchant cash advance companies seems likely to fuel a new acceptance of high rate equipment finance by small and emerging businesses.

We by no means want to rain on anyone’s parade or slow the growth of business.  We would be remiss, however, if we did not remind everyone of what happened between 2009-2011:  many seemingly reliable lessees and borrowers were found to have committed some form of fraud and many credit departments were found to have succumb to pressure to believe that the economy’s rapid growth would continue.

As opportunities begin to open again and we see welcome growth in equipment finance, we hope our clients and friends will remember that deals that are “too good to be true” are often just that, there is no reason to rush through a questionable deal or short-cut due diligence, and knowing your vendor and customer remains the best way to insure that your trust is justified.

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Barry S. Marks is the Founding Shareholder with Marks & Associates, P.C. which addresses the needs of large and small equipment leasing and finance operations in a wide variety of transaction types. The firm has over 35 years of experience in documenting and enforcing financings for many types of equipment. Clients also include brokers, small leasing companies and lease originators as well as funding sources and lenders.  He can be reached at barry@leaselawyer.com or (205)251-8301.