Every product in equipment finance has a demand driver, and most of them are reassuring: equipment acquisition, fleet replacement, capacity expansion. The sale-leaseback’s demand driver is different in kind — the customer already owns the equipment. What the transaction manufactures is cash, and the analytical question that should open every SLB file is the one the product’s marketing never asks: why does this obligor need cash, from this source, now?

The industry’s current SLB boom makes the question urgent. Volume in the product has expanded sharply through the recent tightening cycle — which is exactly what the product’s history predicts, because SLB demand is countercyclical to credit availability: it surges when banks tighten, when working capital gets expensive, and when the marginal borrower’s conventional options close. The same conditions that make the product’s spreads the widest in the market — routinely several hundred basis points over comparable-term acquisition financing — are the conditions that fill its pipeline with the market’s most stressed applicants. The SLB desk is where adverse selection and premium pricing arrive in the same envelope, and the entire discipline of the product is telling them apart.