“The fraudsters just keep getting smarter and smarter. We need to continue to stay the course, stick with the blocking and tackling and the frauds will show themselves.” — James E. Franz, Culain Capital
In a lending market defined by volatility, inflation and fierce competition, the specialty finance sector continues to face sharp risks and sharper decisions. The winners of this year’s ABF Journal Sentinel Awards know this better than anyone. Each of them brings decades of experience, discipline and realism to the task of managing risk while enabling growth.
Their common theme? Technology may enhance risk practices — but human judgment, deep sector knowledge and a clear sense of underwriting boundaries are what keep portfolios resilient.
Knowing When to Walk Away
Cedric Henley, Chief Risk Officer of Specialty Finance at SLR Capital Partners, doesn’t mince words about the stakes. “Rate and structure cannot make up for deficiencies in collateral value, fraud or weak business models because in those cases, the underlying collateral value backing a loan can quickly evaporate, making rate and structure irrelevant.”
Henley shared a story about one deal where SLR avoided a loss by sticking to its risk principles. “The company’s sponsor was pushing to close the transaction without an updated collateral valuation. After speaking with our investment team, we went back to the sponsor and refused to close without an updated valuation. Our instinct was that the liquidation values had moved… As we’d thought, the values were below what was originally submitted and we walked away.”
This philosophy permeates Henley’s view on where the industry stands today. “We are seeing competitors not maintain the discipline that we believe is required to protect our investors’ capital.” He warns against structuring deals around “collateral outside of the traditional working capital (e.g., machinery and equipment or real estate)” which “exposes both lenders and borrowers to increased financial vulnerabilities.”
Tech Tools, Not Tech Crutches
While Henley values technology, he sees it as a supplement — not a substitute. “Our firm does not rely on technology for risk management but rather uses it to get more real-time information to inform our decisions.”
David Ding, Senior Managing Director at FGI, echoes this sentiment. “Technology has and will continue to significantly impact risk assessment and risk mitigation strategies in our industry.” But he also notes that tools are only part of the equation. “The tool is only as good as the information available, making the relationship with the borrower vital in the process of determining the health of the business.”
Ding gives a real-world example of technology-driven strategy at FGI: “Cloud based solutions like FGI Tech’s credit insurance management platform, T.R.U.S.T., allow businesses to save time and cost, leaving the monitoring to technology and allowing for mobile management.”
Still, like others, he emphasizes that good risk management starts with fundamentals: “A disciplined risk manager will (and should) walk away from a transaction that is not a good fit for his or her lending mandate.”
Face Time Still Matters
Despite the rise of Zoom, James E. Franz, President and Co-Founder of Culain Capital, champions the power of face-to-face risk analysis. “I have been able to prevent a serious loss over the years just by spending the time, to meet with our clients prior to advancing them money,” he says. “People often tell you things without saying a thing.”
Franz sees the greatest modern threats in deception and disruption. “The greatest risks we face today are fraud and cyber security. There has always been fraud, the problem now is that the fraudsters just keep getting smarter and smarter.”
He also highlights a unique blind spot: “The threat of MCA debt, taken by your clients after you have closed with them and begun funding their invoices. It happens all the time, and if you do not pay attention, it can destroy your client.”
Franz isn’t anti-technology — but he’s no blind believer either. “Technology plays a role in everything we do from sales to underwriting and from closing to client management,” he says. But “to not lose money, we still need to stick to the basics.”
Leaning Into Complexity
Damon Dickens, Executive Vice President at Sallyport Commercial Finance, flags macroeconomic volatility as a key driver of risk. “The ongoing level of uncertainty at the macro level from the various tariffs and retaliatory tariffs which we are seeing from the current administration … can make forecasting and planning almost impossible for small and medium businesses.”
For Dickens, balancing risk and growth is a daily negotiation: “I believe for any specialty lender this is the critical balance to strike.” His team works closely with sales to evaluate new business opportunities: “Our ethos is finding a way to get to a yes rather than a flat-out decline.”
Dickens sees tech as a critical enabler of that balance: “We have utilized technology in the onboarding process to allow us to comply with our AML/KYC requirements but doing so in an efficient manner … Once we have onboarded a client, utilizing portfolio risk management software allows us to be aware of what are statistically our riskiest clients.”
This combination of tech and experience has expanded Sallyport’s reach: “Successfully marrying technology with our experience and relationship focus can allow us to structure facilities for clients who may fall on the riskier end of the lending spectrum,” Dickens says.
Cross-Border Risks and Realism
David Ding speaks from FGI’s cross-border vantage point. “Lending in non-U.S. jurisdictions requires paying careful attention to the local landscape and identifying key factors that influence the lender’s ability to enforce on secured collateral.”
A study of labor law in Mexico led FGI to innovate. “An in-depth study of the labor situation by collaborating with local counsel and advisory firms led to the formulation of the Contingent Labor Liability, which quantifies the risk exposure to FGI in the event of a downside scenario.”
This strategy paid off. “The Contingent Labor Liability allows FGI to assess its risk exposure and manage the credit effectively to prevent advancing outside of recoverable asset valuation.”
Ding believes the future will favor flexible and disciplined lenders. “The upcoming years will present tremendous opportunities for asset-based lenders to thrive in an environment that is in flux.” And that flux demands a sharp risk lens: “Volatility and uncertainty will spark a shift towards a conservative mindset for lenders.”
Navigating What’s Next
Henley expects more turbulence — and more opportunity. “Already, we are seeing an increase in our ABL opportunity set as companies that traditionally were able to access the cash flow loan market turn to collateral-based solutions to shore up liquidity.”
Looking ahead, Franz sees competitive heat from banks returning. “Over the next few years, based on Trump’s past performance, the regulatory environment should loosen for the Banks, which will in turn allow the banks to do riskier deals at more aggressive pricing.”
Dickens sees change, too — but also a bright side. “The factoring and ABL industry has been growing for several years, and I very much expect that to continue.”
Henley, a veteran of multiple economic cycles, expects to see a dispersion in manager performance in the coming years: “Lenders with stringent risk management practices, who are not hamstrung by problems within their portfolios, will be able to provide new capital solutions for those issuers with clear paths to solvency and attractive liquidation values.”