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TBF Financial Blog

Commercial Debt Developments to Watch

Posted on January 11th, 2021 by Brett Boehm, CEO TBF Financial

Last year was a cataclysmic one for our nation and world. As we close the books on 2020 and look to the future, there were some bright spots in commercial lending and leasing worth noting amid the turmoil.

Bankruptcy filings in 2020 dropped to their lowest point in 35 years, which was surprising given the rise in unemployment and other impacts from the Covid-19 pandemic. Possible reasons why: lenders allowed for deferment on mortgages and some business loans and leases; quarantines and social distancing reduced personal spending; and government stipends and unemployment benefits provided a lift.

Another surprise for us was better than expected success with debt recoveries. Our experience collecting on charged-off business loans and leases, over time, certainly helped, but other factors aiding recoveries included: businesses needing to clear up debt and clean up credit in order to qualify for the Paycheck Protection Program (PPP); government stimulus funds providing businesses a cushion; and industries that thrived despite the pain suffered by other sectors.

So, what’s in store for 2021? We expect to see a rise in non-performing commercial loans and leases (NPLs) this year. This was already a developing trend before Covid hit, as the market normalized from historic lows just a few years earlier. How much of a rise will occur this year remains to be seen and we are following a number of developments in this regard.

As non-performing accounts increase, commercial debt selling activity by banks, equipment finance companies, fintech lenders and merchant cash advance businesses will also grow, and that’s a good thing. Otherwise, the collections process can be a real drain on profitability.

Commercial debt selling is an established strategy in the finance industry because it’s smart for business. Finance companies typically sell their NPLs at the charge-off, or write-off stage, after already devoting significant time and resources trying to collect on them. Once they sell off this commercial debt, lenders and lessors can earn immediate cash at closing and enjoy a definite return now rather than risk diminished returns years later. They also empower staff to focus on accounts that are earlier in the past-due cycle and are more likely to be recovered.

Finance companies sell a variety of non-performing accounts this way, including loans, equipment leases and lines of credit that have personal guarantees or no personal guarantees, are secured or unsecured, pre-agency or post-agency, and pre-litigation and/or reduced to judgment.

So, what developments will we be watching in early 2021 that could affect commercial debt buying and selling in the U.S. this year? Here are a few:

  • Commercial loan and lease default and delinquency trends
  • U.S. political changes due to the incoming Biden administration, power shifts in Congress and societal pressures
  • Government stimulus efforts to mitigate ongoing impacts of the pandemic, and
  • The speed and success of Covid-19 vaccine rollouts

We look forward to sharing our thoughts with you as these developments take shape.

Brett Boehm Brett Boehm is CEO for TBF Financial.
He can be reached at, phone 847-267-0660 or via LinkedIn.

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