When Steve Sands graduated from university, he fell into the Canadian banking industry and quickly decided it wasn’t for him. It felt too rigid, and the pace was too slow. A fortuitous stint in equipment leasing, coupled with an entrepreneurial spirit, had Sands considering the possibilities of opening his own business—so he did. Founded in 2007, Toronto-based Element Financial is one of North America’s largest equipment financial companies, covering aviation, rail, fleet, and commercial and vendor finance. Here, Element’s founder and chief credit officer talks to us about how the financial crisis impacted his business and the trick to growing aggressively without sacrificing quality.
Was having your own company always the goal, or did it arise organically?
Starting my own company was always in the back of my mind, but I also wanted to take the time to build experience and learn different functions of the industry. I was 47 when I started Element, so it took 25 years to build the experience—the best capital—to make the company a reality.
“The lending industry isn’t high tech. The fundamentals of the business don’t change much in lending. That being said, tech can have an impact. It assists equipment leasing by improving the customer experience, primarily when it comes to speed and flexibility. Previously, transactions that took a lot of time can now be done in minutes, which allows vendors to make decisions at the showroom level.”
In the past, you’ve talked about how Element’s goal was “doing business better.” What does that mean in the context of your industry?
Element has evolved a great deal over the years. When we were a much smaller company, we focused on the used-equipment market and on providing speed and flexibility in our underwriting. Our larger competitors were very rigid in how they approached lending in that space with a lot of arbitrary restrictions, which gave us a competitive advantage.
We have always looked at opportunities where larger competitors aren’t participating. At the time, the used-equipment market was underserviced with most lenders focusing on leasing new equipment. Lending in that space, recognizing that opportunity, is what helped us be successful and do business better.
As an equipment financial company, what are some of the biggest challenges you’re up against?
As head of credit, the common, constant issue is structured tension between sales and credit. Good salespeople want to participate in every sale. It can be healthy, but it can also be destructive. It’s something I have to manage on a daily basis. We want accomplished salespeople. Without them, none of us have jobs; they’re the lifeblood of the business. But—and this is a big “but”—we have to hold firm to how we underwrite, and we have to maintain a high-quality portfolio. It’s basically balancing a need for growth against the need for consistency and quality within the portfolio.
What does risk look like for Element?
It breaks down into five areas: credit risks, which is the basis of what we do; asset risk, which is ensuring our advances are appropriately margined against the asset values; liquidity; legal and regulatory; and operational, which, among other things, relates to fraud.
The financial crisis took place just a year after you started Element Financial. What was that time like for you?
I’d say it had a bigger impact on the US, but that doesn’t mean it wasn’t incredibly tough for us in Canada. I still consider that time as the most challenging time of my professional career. We established funding with two life-insurance companies, and when the crisis hit, all funding institutions pulled back. One of our funding partners pulled out entirely. We were in survival mode for a long time. It wasn’t until 2010 that we were able to relax a little, recapitalize the business, and begin focusing on actually growing the business.
Element has undergone six acquisitions in less than four years. Did you intend to grow that aggressively once you were on your feet?
The original plan was to focus on organic growth and expand our geographic footprint in Canada. Again, we saw an opportunity and decided to pursue it aggressively. Many larger lenders were downsizing or pulling out of the market completely. In that way, our first acquisition was strategic, allowing us to step into a robust lease system and upgrade our operating platform. Subsequent acquisitions enabled us to grow our US business. I would characterize our growth and each of our acquisitions as opportunistic.
Rapid growth is a good thing, but it also comes with new challenges. What were some concerns you had as Element began to really take off?
My number one concern is always maintaining quality and consistency in our business model as we grow. The prevalent thinking is that if you grow quickly, you have to sacrifice your credit quality—that’s not anything I’ve ever been willing to sacrifice. Your credit quality is critical to your business; it’s something you have to be extremely careful about. I think we have, but it’s always on my mind.
Moving forward, what are some goals you have for the company?
Primarily, I’d like to see us continue to grow. Eventually, that growth will have to flatten out, but I’d like to see us continue to grow geographically in markets where we’re currently underrepresented. The second goal is to maintain our portfolio quality. Economic downturns will always happen—we can anticipate that—but I want us to insulate ourselves against economic cycles by maintaining our credit standards and a strong portfolio.