Asset-backed securities (ABS) are a financial investment backed by a pool of assets, such as loans. Such loans offer benefits to investors, lenders, and borrowers alike. But they are still vulnerable to losses from loan delinquency. And in May 2025, 60-plus day delinquencies for ABS equipment loans spiked.
What is behind these recent ABS equipment loan delinquencies, and what are the implications? We examined the subject of ABS loan delinquencies, their most common root causes, and how to mitigate the risks.
The Current Landscape of Equipment Loan Delinquencies
Recent data from Kroll Bond Rating Agency’s (KBRA) Equipment Loan & Lease Index reveals that 60-plus-day delinquencies in equipment loan and lease ABS surged by 34 basis points (bps) month-over-month in May 2025.
Small to medium-ticket delinquencies jumped 22 bps month-over-month, while large-ticket delinquencies increased 41 bps. Year-over-year, there was an increase of 1,8% in these delinquencies in the current period. This indicates that stress has been building within equipment financing portfolios for some time.
According to Joanne DeSimone, managing director of commercial ABS at KBRA, the increase, specifically of large-ticket delinquencies, “has been driven over the past two years by the stress in transportation assets, the stress in trucking”.
Factors Driving the Increase in Delinquencies in Asset-Backed Securities
Let’s consider the factors driving these delinquencies.
A Symptom of a Larger Problem
Delinquency rates have been increasing across various types of loans for some time. Auto loan delinquency rates, especially, have been increasing across credit scores and income levels. Therefore, we can see that Americans have been struggling to keep up-to-date with loan payments across the board.
Inflation
Rising inflation is often a factor in loan delinquency. Inflation affects the cost of loan repayments. Even a modest rise increases the cost of goods. Even a modest rise increases the cost of goods. And that can make it more difficult to keep up with loan repayments as well.
Equipment loans are crucial for enabling trucking companies to remain operational. But if they’re paying more for essential goods and services, business owners may have to allocate more resources toward basic operations, compromising their ability to service debt obligations.
Low Business Confidence Due to Economic Uncertainty
When businesses feel confident about their future potential, they are more likely to do what it takes to grow their operations. That includes repaying loans, because they know that they will be able to afford it. However, business confidence, especially in smaller businesses, has been weakening.
And the main reason behind that is the economic turbulence that has been plaguing the US. Inflation, monetary policy, freight slowdown, and trade tariff uncertainty have all impacted the economy. This can make small fleet owners fearful of the future and less likely to prioritize loan repayments.
Industry-Specific Factors
Other factors influencing loan delinquency amongst trucking companies are more industry-specific.
The North American trucking industry in 2025 is grappling with various issues, including inflationary pressures from tariffs, trade policy shifts, and market realignments. Freight volumes also remain conservative.
Fuel costs, maintenance costs, labor expenses, supply chain disruptions, and trucking market volatility create a squeeze on cash flow, pushing loan payments to lower priority levels.
And the FMCSA’s proposed regulatory changes add further stress on smaller fleets.
Implications for Stakeholders in Equipment Finance
What are the implications of ABS equipment loan delinquencies for stakeholders?
Lenders
The spike in ABS equipment loan delinquencies creates ripple effects throughout the financing ecosystem. Lenders rethink their risk management strategies and underwriting criteria. Investors worry about returns and portfolio performance.
Investors
The rise in ABS equipment loan delinquencies and the uncertainty they cause can lead to reduced appetite for new ABS issuances. This can potentially constrain the flow of capital into loan and lease pools.
Borrowers
Trucking businesses and other equipment-dependent operations that rely exclusively on traditional bank financing or ABS loans may find themselves vulnerable. This signals the importance of diversifying financing sources and maintaining strong relationships with specialized lenders.
Equipment Manufacturers
The broader implications extend to the equipment manufacturers and dealers.
Equipment loan and lease pools have shown resilience despite economic challenges. However, as delinquencies rise and lenders become more selective, commercial truck manufacturers may need to explore alternative financing partnerships or develop solid internal financing capabilities.
Mitigation Strategies
Successful navigation of the current environment requires proactive approaches from manufacturers, lenders, investors, and borrowers.
For Manufacturers: Seek Industry-Leader Partnerships
Manufacturers of other trucking equipment can increase their sales figures by partnering with trusted lenders. But they should seek out financing partners that are dedicated to the industry, like Mission Financial Services.
For Lenders: Develop More Stringent Evaluation Methods
Current evaluation methods may not adequately capture emerging risks in the equipment financing space. Lenders should start implementing more stringent qualification requirements and potentially adjust pricing to reflect higher risk levels.
For Investors: Focus on Risk Assessment and Portfolio Diversification
Investment is always risky, even with traditionally resilient asset-backed securities. Portfolio diversification can reduce the risks associated with a truck-centric only portfolio.
The constant default rate (CDR) helps investors understand the potential for losses in ABS loans. Investors should pay more attention to risk management based on the CDR.
For Borrowers:
Trucking companies can strengthen their financing positions by maintaining detailed financial records and prioritizing financial management. They should explore specialized financing options designed for their industry’s unique characteristics, such as Mission Financial Services.
The Outlook
The outlook for equipment financing markets depends largely on broader economic challenges and policy responses.
When inflationary pressures moderate and interest rates stabilize, we may see improvement in delinquency rates. However, businesses should prepare for continued volatility and maintain conservative financial management practices.
Moving forward, we expect the equipment financing landscape to evolve as lenders adapt their strategies and borrowers adjust their approaches to capital management. Success will depend on flexibility, preparation, and correctly aligning financing with overall performance and long-term business objectives.
Conclusion
The spike in ABS equipment loan delinquencies during May 2025 demands attention from all equipment financing ecosystem stakeholders.
But most importantly, trucking businesses must practice stronger financial management and find lenders who understand industry-specific challenges. The current environment, while challenging, also creates opportunities for businesses that can demonstrate strong operational performance.
Trucking businesses taking proactive steps to address financing challenges will be better positioned to weather current market conditions. And Mission Financial Services is ready to meet their needs with favorable terms despite broader market constraints.
Contact us for more information on financing options designed to meet the needs of the trucking industry.
