You landed the deal — now what? In the final installment of his sales series, Scott Kiley breaks down how top equipment finance pros drive credit approvals, lead smooth closings and turn first-time customers into long-term partners.
You created and followed a marketing plan, classified your database of prospects and customers and set a calling frequency, conducted a productive meeting with a high-priority prospect, presented a CFP (customized financing proposal) emphasizing the key benefits of a tax lease likely to resonate and now you’ve been awarded a $10 million eight-year tax lease for new machinery. To cap off my series “The Art and Science of Becoming a Successful Equipment Finance Sales Professional,” let’s focus on maximizing approvals, quarterbacking the closing and creating a long-term customer. Let’s assume for this article that the customer provided high-level financial information, including total revenues of $125 million and a range of historical profits of $10 million to $20 million annually, but they didn’t provide financial statements prior to your bid.
Science of Selling Truth No. 7: Maximizing credit approvals first means you are “fishing in the right pond.” Whether you are a direct or indirect originator, knowing the specific credit policies and credit culture of your organization is imperative. If your company has always been very conservative with trucking credits, don’t waste your time chasing weaker trucking companies. An efficient and effective marketing plan focuses on calling on those companies in industries attractive to your credit team and that meet minimum revenue size or credit profiles, if those details are known. Step up to the plate knowing you will have a higher batting average by pursuing those companies that are most likely to get approved. I hate to break the news to you, but you are not going to change the credit culture of your organization, so don’t constantly try to swim upstream.
Art of Selling Truth No. 6: There is a direct correlation in achieving a high approval rate and your credit team’s respect for your credit skills. You gain that respect by your daily actions. First, spend time building relationships not only with your first line credit team but also with the senior credit leaders in your company. A solid business relationship is great, but if you can establish a deeper personal relationship, that’s even better. Secondly, “fish in the right pond and don’t land a bunch of stinky fish.” Nothing denigrates your standing with the credit team more than bringing in a bunch of deals with companies that are clearly outside your company’s credit strike zone and then fighting like hell to get them approved.
DIG IN BEFORE YOU SUBMIT: HOW TO BUILD A CREDIBLE, DEFENSIBLE CREDIT PACKAGE
Getting back to your awarded deal. As you requested, the company provides historical financials for the last three years and interim financials with prior year comparable results. You get the spreads of the financials back, and now is the time for you to dig into the financials and spreads and jot down the key credit observations that either need more explanation or should be incorporated in your submittal. It might be revenue or profitability trends, debt structure, overall leverage, customer concentration or litigation mentioned in the notes. Do your job as the first line of defense in the underwriting process and go back to the company if you need more information about your material observations (your credit analyst will have the same questions if you are in sync) before you submit the deal. I am not talking about bugging them for immaterial information, but if revenues and EBITDA dropped 20% in the prior full year, you’d better get the story as to why. If you see in the notes that two customers represent 40% of revenues, ask the company who these customers are, how long they’ve been customers, the contractual nature of revenues, how many different “widgets” they supply and if they are the sole supplier of those widgets to the customer.
They also provided detailed specs on the equipment. Ask them what prompted the equipment need, and ask for a copy of any cost justification or ROI analysis completed on the equipment purchase. Now you have the information to complete a detailed submittal that should include six to eight key strengths of the deal, two to three weaknesses and mitigating factors. The strengths and weaknesses can be related to their financial performance, the equipment or the deal structure. A weakness could be that the eight-year term might be viewed as a stretch, and mitigating factors could be strong cash flow, well-structured debt with no major balloon refinancing risk and equipment that you know your asset management folks would love to add to the portfolio.
You will earn the respect of your credit team with thoughtful and complete deal submittals. Don’t just throw a deal into credit without analyzing the financials and addressing material observations or providing detailed equipment information and hoping for the best. While you need to be careful not to fight too hard for a deal with a clearly weaker credit, you should be prepared to fight for a deal you believe in by arming yourself with as much knowledge as you can to address concerns from credit. It’s my experience that initial issues that credit raises need to be addressed head-on and quickly because they will keep popping up if you don’t.
Most equipment finance companies have a process to review new large deals involving the key decision makers from credit, sales, and asset management. This “deal pitch” call could be before you even bid on the deal if it’s an existing customer or you have complete information on a prospect, or it could be after the submittal. Having a high batting average in getting early support for your deal is a key to your future success. Do your homework to be prepared and concise in your key discussion points. You have a very small window to make the best first impression on your deal, so write down your opener to drive home the key deal points. Address right away any obvious weaknesses, as the credit people want to see that you “get it” and don’t simply gloss over key risks. For instance, “I realize leverage is on the high side, but they generate consistent profits and cash flow, maintain high availability on their revolving credit line and their long-term debt has very little balloon refinancing risk during the lease term.”
Art of Selling Truth No. 7: Your deal pitch should be factual and brief, and it should point out both strengths and weaknesses. Also, try to avoid getting put in a corner to keep options open. I used to think early in my career that the deal pitch was my time to regurgitate everything I knew about the credit and the deal to show everyone how smart I was. What I found out later is that being long-winded is not highly regarded by most of the senior credit and sales managers, who are very busy people. This means you must refine your skills to identify what is important enough to mention and what is not. Some senior risk folks love to challenge salespeople, especially the younger ones, and ask a lot of questions on these calls to see if you “know the credit and know your deal.” My best piece of advice is if you don’t know the answer to a question, don’t make one up, and tell them you will circle back. Also, you will not be building credibility with the credit leaders by saying phrases like, “We should be doing business with this customer, as many of our competitors are in this credit.”
If the senior risk manager wants you to shorten the deal to five years, and you know that’s going to be a deal killer, make the case for the longer term, hopefully with the support of your asset management team and make sure you have the support of your sales manager. Alternatively, get support for other options, like maybe a 10% refundable security deposit, or maybe a less drastic change to a seven-year term. Avoid the ultimatums of “five-year term or no deal” because my experience is that going back with such a material change won’t end well for you.
TAKE RESPONSIBILITY TO ENSURE A SMOOTH CLOSING
As an equipment finance salesperson, your job doesn’t end after you get a credit approval and submit the deal to your doc team to generate the closing documents. Your job as quarterback is to set up realistic timing expectations that both your customer and internal team can agree on. If the customer tells you they want to close the deal in two days, it’s your job to challenge that fire drill request and talk through what is prompting that request and set up more realistic expectations by articulating the steps that need to be taken, including information you need from the customer, in order to get the closing done as soon as possible. Just as your credit managers know which salespeople have weak credit skills and fight for bad deals, your doc team knows the salespeople who treat every deal as a fire drill and have a lot of surprises come up on every deal closing. You don’t want to be one of those salespeople.
Introducing your doc person to the key contact at the company to allow for direct communication is a great idea, but ask to be included in the e-mail communications to make sure mole hills don’t quickly become mountains. Before a completed set of docs goes out to the customer, check that all the lease economics are accurate. If the deal is going to be syndicated, have the syndicator check the economics as well to make sure everyone agrees.
I have found that many closing delays are caused by the company not providing the information needed, yet your primary contact, the CFO, isn’t aware that his/her team is the one holding up the closing. Stay informed about any issues that are delaying closing and keep the CFO informed. For instance, their bank might have a UCC blanket lien filing on all assets, and you need a lien release or a subordination. Your doc team says they are working with the company, but it’s not getting resolved. You bring this to the attention of the CFO, and he/she makes one call to his banker and gets the lien subordination signed immediately.
PRO TIPS: GETTING A MASTER LEASE AGREEMENT (MLA) IN PLACE WITH A NEW CUSTOMER:
During your career, you will have to work through some tough negotiations to get a master lease put in place with a new customer. Whether they have inside or outside counsel, there will be requested mark-ups to your standard MLA. You must familiarize yourself with the most common provisions that are negotiated and what your company’s “fallback” positions are on these provisions. The most common requests center around:
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Grace periods to cure nonpayment defaults
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Cross defaults to third-party obligations and the desire to establish material dollar thresholds
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Change in control or ownership provisions. PEG-owned companies really focus on this provision
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Liability limits required under insurance provisions or request to self-insure for physical damage or liability
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Lessor’s ability to assign the deal without notice to or consent from the lessee
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Onerous return provisions related to the equipment if the lessee elects to return the equipment
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Which state’s rule of law will be followed
I guarantee you that your company has agreed to many “fallback” positions on these provisions. Get up to speed on what those alternative positions are, but also realize that what is acceptable is going to be adjudicated on a case-by-case basis and will depend on the strength of the credit of the lessee. There will be more willingness to negotiate and adopt “fallback” positions with larger and stronger credit lessees.
CREATE A LONG-TERM CUSTOMER
Make a point to follow up with every new customer around the time the first payment is due on the lease. This is a great quality control check as well to make sure information was coded correctly to generate invoices in a form desired by the customer, which will result in timely payment. Quickly and decisively deal with any late payment issues that crop up during the first few months of the lease. This is also a good time to introduce other administrative folks from your team involved in account servicing to their counterparts at the customer. Making broader and deeper connections at several levels of the organization solidifies your relationship.
Make sure they understand you have more credit capacity or introduce syndication capabilities if it is likely you will need to deploy syndication in the future. Getting an MLA in place, initial credit approvals and all the KYC (know your customer) requirements completed to fund that first deal are the most time-consuming steps of onboarding a new customer. Now you can confidently approach them about future needs, knowing you can efficiently respond to their requests. You might have had to offer up very thin pricing to get them in the door, but my experience is that you can increase your spreads and relationship profitability as you do more business as the incumbent.
Continue a consistent calling pattern, offer valuable insights that are relevant to them and their industry and be the first (and last) person they call for any future equipment finance need.
I hope you enjoyed this series. You can find me on LinkedIn, and I look forward to hearing from you. For Suite by Monitor subscribers, visit the site for a two-page “cheat sheet” of my best sales tips at each selling phase from my 40 years in the business.
Scott Kiley is a seasoned equipment finance professional with over 35 years of experience in capital markets, indirect and direct originations, and syndications. As an in-house instructor for the Equipment Leasing and Finance Association (ELFA), he provides industry training, equipping professionals with the knowledge and strategies needed to excel in equipment leasing and finance. Kiley spent more than two decades at Fifth Third Bank, where he led the Equipment Finance Capital Markets Group as a Senior Vice President. Prior to that, he spent 21 years as a Vice President of Indirect Originations. His early career at GE Capital involved managing sales teams and driving tax lease sales for middle market companies.
