At a Glance
- Concentration limits in most equipment finance portfolios were calibrated to a prior vintage of business and have not been recalibrated to reflect current origination mix, collateral composition, or obligor profile evolution.
- A Secured Research survey of 95 equipment finance credit leaders found that 44% have not materially revised concentration limits in more than 24 months—despite significant shifts in portfolio composition during that period.
- The most dangerous concentrations are not the ones your limits measure. Industry codes and geography capture headline risk; correlated exposure across supply chains, end-markets, and equipment categories creates the clusters that produce outsized losses.
- Effective concentration governance requires dynamic recalibration tied to origination trends, not annual policy reviews that ratify limits already embedded in the business.
Limits That Protect Yesterday’s Portfolio
Every equipment finance portfolio has concentration limits. Most of them are wrong—not because they were poorly designed, but because the portfolio they were designed for no longer exists.
Concentration limits are typically set during annual credit policy reviews based on the portfolio’s composition at that moment. The problem is that origination mix shifts continuously while limits are revised episodically. A firm that set a 15% healthcare concentration limit when healthcare represented 10% of the portfolio may now be originating 25% healthcare without technically breaching the limit—because the limit was expressed as a percentage of the portfolio at the time of the last review, and the denominator has grown.
