Charting a Course for Your Lending Platform in 2024

It’s that golden time of year again. It’s a moment to reflect on our journey through 2023, celebrate our successes, express gratitude to those who contributed, and gear up for the challenges and opportunities that await in 2024. In the ever-changing landscape of specialty finance, strategic planning and preparedness are crucial to thrive in the evolving private credit landscape.

Reflecting on 2023: Building on Success

As we approach the close of 2023, it's an opportunity to reflect on a year that brought a unique set of challenges and opportunities to our industry. For many, the year didn't start with roaring growth but rather a cautious, measured pace. The first few quarters saw generally subdued activity, with many facing uncertainties as banks tightened credit standards.

However, the financial landscape is ever evolving, and 2023 had its surprises in store. As the year progressed, we witnessed a significant uptick in deal flow, albeit with an initial tilt toward marginal credit quality. The banking crisis spurred activity, presenting opportunities that for some came with a catch: a substantial increase in the cost of funds. This new landscape presented a fresh capital challenge, which extended beyond small and medium-sized enterprises (SMEs) to lenders themselves.

Adapting to this changing terrain required careful planning, the readiness to take on new deals, and strategic hiring to accommodate the growing demand. Those who had the foresight to incorporate adjustable rates in their agreements found themselves better positioned to navigate these new opportunities.

In the realm of transportation factoring, 2023 presented a unique set of headwinds. The industry faced ongoing challenges, requiring adaptability and innovation. Many were forced to find efficiencies in managing the various risks and hurdles, demonstrating remarkable resilience in the face of adversity.

While not every facet of 2023 was characterized by exponential growth, the year showcased innovation and resourcefulness within our industry. Lenders and factors found new ways to operate with greater efficiency and exhibited strong resilience, proving that even in challenging times, there are opportunities for growth and advancement.

Financial Projections for 2024: A Map for Success

As we set our sights on 2024, discussions and planning will be key in creating your overall projections and plans – be it for you, your team, your lenders or your investors. Margins are going to continue to be a critical focus, and many are assessing their overall rates and how they align with the shifting market. Lenders and factors are seeking opportunities to expand their products and explore revenue diversification. If this is part of your strategy, have those considerations been included in the upcoming year’s budget planning?  

As we enter 2024, be sure to factor in talent acquisition, especially in a competitive market with rising compensation levels. Consider the costs of tech enhancements for efficiency improvements and establish key performance indicators for operational efficiency, as such goes the phrase, “You can’t manage what you can’t measure,” often attributed to Peter Drucker.  

One of the main topics of discussion for those planning for the new year has been capital readiness. Access to capital is paramount to growth, especially given the general tightening in credit and rising interest rates. This may already be part of your planning discussions with your lenders to best understand line increase options and flexibility, and if syndication would be necessary in a difficult syndication environment. Planning for these capital considerations or the addition of subordinated debt or equity, may in fact be part of your projections in 2024. And if they are, it’s time to get started as increasing or raising capital always takes longer than expected. If these goals are part of your plan, it’s time to seize the day.  

Risk Management and Compliance: Safeguarding Your Future

With the current credit and financial landscape, a proactive approach to risk management is necessary – something else to take into consideration when developing your 2024 goals. Vigilant portfolio management will be a requirement next year, even more so than in recent years. Not surprisingly, changes in the general credit environment have brought an uptick in delinquencies as well as fraud, necessitating strategies for early detection and swift action. Ensure your team is well prepared for identifying trends early, with the tools, resources and expertise needed, and that they remain grounded in solid credit and process fundamentals. This may be one of your company’s primary goals for next year, and one where each person can be a contributor to help achieve success.  

Additionally, 2024 will introduce new risk considerations related to regulatory changes. Staying informed is essential, so prepare your organization to navigate these changes and maintain compliance with the ever-changing requirements. Consider designating a dedicated individual or team to monitor these updates and communicate them with the team, another way to safeguard your firm’s future success.  

In summary, as we enter 2024, it's clear that the new year may be transformative for the world of specialty finance. Challenges and opportunities will continue to emerge, and your ability to adapt and thrive will depend on your strategic planning and preparedness. By reflecting on the lessons of 2023, fine-tuning your financial projections for what you want to achieve and how you can execute fully, and prioritizing risk management and compliance, you can chart a more successful course for your lending platform. Remember, should the need arise, we at Haversine Funding look forward to helping be part of that journey.