Question I: Who said: “Those who don’t know history are destined to repeat it”?

In 1963, I left public accounting to become a field examiner for James Talcott, Inc., headquartered in New York City. The company, which boasted a New York Stock Exchange listing, was an old line factor, an equipment finance lender and also maintained a commercial financing unit. The Uniform Commercial Code’s state-by-state adoption process introduced in 1952 helped to bring asset-based lending and factoring into vogue. In those days, Talcott’s competition included Walter Heller, The Associates Commercial Credit, CIT, Meinhardt, A.J. Armstrong, Congress and Rosenthal along with many other factors and commercial finance companies. As I look around today and in the fifty years since my entrance into the factoring and commercial finance business, I believe only Rosenthal and CIT remain as independent entities. Most of the other pioneer factors and commercial finance companies were absorbed by banks and other companies, or in some cases, failed entirely. And still others were acquired by larger entities. In time, some of those acquirers failed.

Question II: Who said: “Those that fail to learn from history are doomed to repeat it”?

Advance forward to 1995, which was a milestone year for me personally. At that time, I was chairman of the Commercial Finance Association and some of the major factors and commercial finance companies were Finova, Freemont, CIT, Rosenthal, Barclays, Shawmut, Fleet, LaSalle, Bank of America, Nations, Transamerica, Heller, GE Capital, Bank of New York, Citibank, Chase, Congress, Foothill, Well Fargo, Norwest, IBJ Schroder among other CFA companies. Of the 20+ companies listed here, how many are still doing business under those corporate mastheads? Where have they gone? Why have they gone? How many survived? How many lost their identities through mergers? How many acquiring companies failed?

Question III: Who said: “He who ignores history is doomed to repeat it”?

In the earlier days of our business, key players (industry leaders) like Talcott, Abrahams, Acker, Campbell, Basile, Donohue, Goldman, Kohn, Lazere, Mariani, Nickoll, Silverman and others led their companies into unique tranches of commercial financing.

Today, who are the major players and stalwart leaders in commercial finance? While many of the corporate entities have changed names, these key players have remained the same. They include: Sharkey, Kosis, Coiley, Goldstein, Haddad, Hafner, Maiorino, Monosson, Nemia, Petro, Reilly … and I apologize to the other hundred or so leaders I have omitted from this compilation. They have done an admirable job these many years.

Some Big Questions for Asset-Based Lenders

Is asset-based lending really margined lending predicated on the borrowers’ asset value? Today, does the lender meticulously adhere to fundamental loan value standards? Does the actual business process price loans to match the risk taken by funding undercapitalized ventures? Do lenders charge adequately for their risk? In reality, do lenders behave as venture capitalists without the upside rewards generated by successful investors? Do asset-based field examiners really monitor the assets pledged? Does the back office really monitor loan and collateral values to protect the lender? On a transaction-by-transaction basis, does the lender maintain their lien priority status? Does the lender manage individual loan size to the lenders’ capital base?

The Really Big Question:

Is loan structure and pricing determined by the most knowledgeable lenders or rather, by the least sophisticated lenders? In other words, is the market driven by the lowest common denominator?

As can be inferred by my observations above, I have walked several miles alongside our predecessors. There are many names not mentioned above because of the time periods specified. I have witnessed many lenders thrive and many lenders fail.

Once upon a time, there was an entity that I’ll call “Finance Company A.” Finance Company A enjoyed a very long period of success and in time, grew from a very large conservative lender to a huge and very aggressive finance company in four different holding companies. To grow loan volume, this lender assumed large, unsecured risks during the 1990s. This was “A’s” creative growth period and during this period, significant incentive compensation was paid to all involved with the “rush to lend” process. Subsequently, large loan losses materialized and the company had to be liquidated. The last holding company to own Finance Company A had a significant charge off.

One final question: How many commercial finance ventures were created with dreams, business plans and a few bucks? During my time in this business, I have reviewed at least 50 finance companies who claimed adherence to conservative lending principles while at the same time, stretched to reach volume goals by taking on super large risks to obtain perceived objectives. Many of these finance companies ended up being unsuccessful ventures when their managements virtually rolled the dice and gambled for success.

Some Answers:
Here’s who said what.
Question I: Edmund Burke, 1729-1797
Question II: George Santayana, 1863-1952
Question III: Winston Churchill, 1874-1965
The Big Questions: What, not who … Fifty Years of Observation

Editor's Note: Walter has asked some probing questions. We welcome your comments and observations.