Amid funding constraints, a growing number of leasing companies are deciding that they will no longer originate business through the broker channel. Leasingnews.org lists no fewer than 70 organizations that have discontinued or cut back on broker business.

Still others are simply closing up shop or have sold their leasing portfolios after suffering losses. Last year, monitordaily.com reported on several companies — including Evans Bancorp, Lakeland Bancorp and Sandy Spring Bank — that were forced to severely cut back on their leasing businesses as a result of market turmoil.

We asked our three funding sources to comment on how the broker relationship has been challenged as the financial crisis recedes. All agreed that traditional channels have been stressed and measures of creditworthiness have changed in the face of stricter funding requirements.

Dale Kluga of Cobra Capital says his company remains committed to funding leases through the broker channel but acknowledges there has been a change in the company’s business model. “Cobra’s credit requirements have increased materially, which has been a frustration for those brokers submitting traditional ‘story credit’ deals, “ he says. “We continue to listen to every single story for any deal that is not on our industry ‘prohibition’ list, but we fully acknowledge we remain highly selective particularly in this environment.”

Michael Przekop of Bank of the West says he continues to be open to adding new brokers providing they meet the company’s criteria, which has become more stringent.

“Traditionally broker-generated business has been viewed as riskier than direct-originated business,” he says. “The challenging economic environment caused us to drill down to each broker and type of transaction whether it be application-only or financial statement to really examine the quality of product that brokers were providing us and to make appropriate adjustments.”

Przekop suggests that in tough times, the cream rises to the top. “Bank of the West has been in the broker business for 37 consecutive years and over that time we have seen lessors come into and out of this space,” he says. “It takes discipline to adequately plan for good and bad times, and the bad times tend to very abruptly shake out the weaker players.”

“We determined not to deal with certain originators based on the performance of their portfolios,” says Fred Croft, of Enterprise Funding Group. In 2009, Enterprise stopped originating new business through its broker channel, which accounted for $42 million of NBV in 2008. Croft says that this was largely a function of a more conservative approach to lending from the bank community.

“Banks with whom we did business will no longer serve this market; venture capital and private equity funds have refused to fund lenders serving this market,” he says. “I believe that that’s the wrong decision, and bad for capital formation in small businesses in America, but that’s a widespread feeling.”

As a result, he says, Enterprise reduced the amount of business it did with originators that it felt didn’t understand its criteria. Croft adds that with funding nearly cut off, the market has become oversaturated with originators that are seeking funding anywhere and everywhere.

As a result, he says, “The number of ‘questionable’ transactions we saw increased. While an originator may have gotten one deal passed us, it faced much more serious scrutiny on every other deal. This hurts the reputation of all originators, and contributed significantly to the exodus of funding sources from the independent originator market.”

We asked our funders to offer words of advice to the broker community. Here’s what they told us…

Croft: “The decisions you made over the last five years determine your ability to get funding today. Independent originators will receive funding sooner if they have a demonstrable track record of good deals and honest dealing with their funding sources.”

Przekop: “Brokers should conduct a self examination and realize what they do best and really concentrate on developing that niche whatever it may be. Trying to be all things via a shotgun approach will become a recipe for disaster in 2010.”

Kluga: “Focus on the highest quality deals possible, shorten the lease term as best as possible, stay close to your loyal sources and be as patient as you possibly can realizing that despite what Wall Street misrepresents, we are nowhere near an economic recovery on Main Street.”