Early in his career, Michael Fanger recognized the value of forging connections with people — long before launching his business in New York. The Boston native learned this lesson from his father who built a successful finance company that is celebrating its 45th anniversary this year.
“Growing up, if you listened to my dad, you’d think he never made a good loan,” Fanger said. “But obviously his company has done alright. On one hand, he professed a conservative approach to the business of lending, while also stressing the need to visit customers, hear their stories and build relationships with them based on trust.”
Fanger never worked for his father, wanting instead to make a name for himself. He began his finance career in a commercial loan training program with Shawmut Bank in Boston. In 1987, he moved to the Big Apple to get married and joined Medallion Financial Corp. Fanger was hired to build a commercial finance operation separate from Medallion’s successful business serving the local taxicab industry.
He thought his best chance to become a successful niche finance provider rested with a narrow industry focus, product mix and geographic market. Fanger ultimately targeted coin laundromats and dry cleaners. He considered these to be “basic” industries with low failure rates. After all, he surmised, people always need clean clothes and there certainly are a lot of these businesses in New York.
In addition, the structure of the loans and leases would be very similar to those offered through Medallion’s taxicab business. The opportunity to establish a financing foothold in these close-knit industries in the city was too good to pass up.
Fast forward ten years. Fanger built a $50 million portfolio of business for Medallion, servicing the financing needs of laundromats, cleaners and eventually convenience stores throughout the region.
Fanger thought, however, if he did not start his own business by the time he turned 40 years old, he may never. So, on his birthday in July 1997, Eastern Funding was incorporated. He assumed the same narrow vision for his finance company that worked so well at Medallion. His ambitious plan was to dominate the same niche in the New York/New Jersey region.
In hindsight, Fanger knows he was lucky to launch Eastern Funding during the late 1990s, when it was still possible for a startup company to secure a substantial line of credit.
In addition to raising $5 million on his own, he secured another $20 million in conduit financing from funders with whom he had built close ties with earlier in his career. “With $25 million to start the business, I had the luxury to focus on gathering business and underwriting credits,” Fanger explained.
Recognizing his company was too small to garner much attention from equipment vendors early on, Fanger called on distributors, many of whom he had known for years, to secure referrals and build a steady stream of leads.
Half of the company’s originations still come from this channel today, with about 40% generated directly from repeat customers. The balance of its business is generated from local brokers. Deals range from $25,000 to $1 million.
Eastern Funding’s second brush with good fortune came in 1999, when it received a $3 million investment from Massachusetts-based Brookline Bank. Fanger considered this “extraordinary” since the company had not yet been profitable. The timing was ideal for both organizations: the firm’s access to conduit funding was ending and Brookline was looking to diversify its investment portfolio.
Brookline acquired a majority interest in Eastern Funding in the spring of 2006. The timing was fortuitous, as Fanger was in the process of chartering an industrial loan company to raise funding. He and his investor group entertained a number of other offers to sell the company.
They decided to sell to Brookline not only because of their close familiarity with the management of the bank, but also because it was not already in the leasing business. This enabled Eastern Funding to retain its name and identity. The initial investors were bought out, but its management team retained partial ownership.
According to Fanger, the biggest challenge was adjusting to the complex regulations that govern the banking industry. It has not always been easy, he noted, but Brookline has been a supportive parent. “Bank funding has enabled us to be more competitive with our pricing and attract better borrowers,” Fanger said. “It also allowed us to do more with our very best, existing customers.”
Closer relationships with equipment manufacturers also have helped build business. This has been especially true with other funders bailing out of the market. Fanger always thought joining a bank would be best for his company over the long term. He is not sure if an independent lender can charge enough spread in today’s market to attract investors.
To be sure, Eastern Financing has been dealt its share of “tolerable” challenges over the past two years, but still has maintained a major footprint at home, with 60% of its business today originating from the New York/New Jersey region. Controlled expansion is underway in other markets, as well, which accounts for the balance of Eastern Funding’s business. So far, deals have been closed in 30 states.
Fanger knows, however, not to stray too far from his original vision, admitting he is most comfortable with growing in the New England and Mid-Atlantic regions. Future success lies with his team building similar close relationships with equipment distributors there, too. This work is starting to pay off in the Washington D.C. market, in particular, he said.
Fanger’s conservative outlook for the future should come as no surprise. He thinks the industry should slowly strengthen before a sense of normalcy returns in 2012, despite signs that the economy may have already bottomed out. “There’s a lag time before the lending industry sees improvements,” he explained.
Fanger has seen an improvement in Eastern Funding’s delinquency ratios, now in the 1% to 2% range over 30 days. He is wary of this figure, though, for loan restructurings have risen and he knows they do not always work out. Net charge-offs were about 1% in 2009. Numbers aside, he judges the company’s success in large part by the success of his customers, many of whom he has built long-standing relationships with over the past two decades.
Fanger likens Eastern Funding to a community bank and professes the same basic business fundamentals to customers that he has followed: a strong balance sheet, smart borrowing, minimal leveraging, conservative forecasting and planning for the unexpected. “All of our customers have stories,” Fanger said. “Many are immigrants who had little or nothing when they started their businesses. Watching them grow and prosper is very fulfilling. That’s what I enjoy most about my job.”
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