In Monitor’s very first brokers roundtable, Paul Burnham, Gerry Oestreich and Spencer Richman give us the rundown on building and maintaining better relationships between funding sources and third-party originators.
Spencer Richman, President, American Financial Network
What are the things you find most useful when working with funding sources? What do you find least useful?
Paul Burnham: Funders, please let the TPO [third party originator] know how important they are to the organization. Answer the phone and respond to their emails promptly. There’s nothing more frustrating than not being able to get a hold of the funder.
Be open and share the modus operandi. I was recently engaged by a big bank, and they sent me a three-sentence email with rates and fees and nothing more. It’s hard to know a funder’s appetite without a clear definition, [of] likes, dislikes or restricted equipment.
Do the paperwork. It doesn’t seem like a big deal, but having to type out a document package takes me out of production for half of my work day.
Let the TPO know the reasons why an application was declined.
Gerry Oestreich: Timely communication at all stages of any deal is important, not just occasionally. It’s troublesome if there is no policy of notification when a new credit app is even received, only to find out four hours later that it was not received or logged in because of some little glitch when we inquire about its status.
Not knowing what is happening during lender processing without any expectations of timeline for progress can be troublesome and challenging. We usually like to keep our customers and vendors informed on a timely basis.
Spencer Richman: The thing that I find most useful when working with a funding source is a person who is available, responsive, professional, knowledgeable and friendly. No technology can replace a strong personal relationship with a true professional.
However, aside from the right person, the tool that I find most useful when working with a funding source is an online portal which is intuitive and allows for credit submission and documentation. A good system creates efficiencies on both the broker/lessor side as well as the funding source side.
Finally, the last thing that I find useful is a competitive cost of funds for the credit box in which they approve transactions.
How can funding sources best communicate with brokers in order to build solid, long-term relationships?
Burnham: Take good care of internal customers, your employees. People matter and relationships matter. My favorite funders have long-term employees with great industry knowledge.
Do not have a direct internal salesforce going after the TPO’s business. There’s nothing worse than working with a funder when you know as soon as the transaction is done, their direct sales force will be all over your client.
Send regular emails with program highlights and updates, rates as well as likes [and] dislikes.
Oestreich: Prompt communication from application submission to “it’s funded” which allows us to communicate with our customers and vendors regularly. Complete and prompt communication, ease of funding and getting paid are sometimes more important than rates!
Richman: I believe that building a solid long-term relationship with a broker/lessor requires two kinds of communication from a funding source.
The first is the regular drip-marketing communications via email and/or snail mail that reminds the brokers/lessors of the programs and policies, rates and specials, successes and things to avoid. These communications keep the funding source top of mind and keep the broker informed about the funder.
The second kind is the live verbal communication that comes from available, responsive, knowledgeable and friendly professionals who represent the funding source. No funder can put every possible situation into a broker manual. When a broker/lessor is trying to close a sale or document a deal and has a question, he needs an answer right away to keep the transaction moving. If the funding source does not have a representative available or if the representative does not know the answers or if the representative is not responsive in replying to messages, then the broker/lessor’s transaction may stall out or even die on the vine.
How can funding sources and brokers work together to keep the equipment financing and leasing industry healthy?
Burnham: Support industry advocacy organizations like the American Association of Commercial Finance Brokers, Certified Lease & Finance Professional Foundation, NEFA, ELFA and others. Encourage new blood to enter the market through education, continuing education, training, internships for students and workshops.
If both funder and TPO share information, especially what they’re hearing from the market, both may be better prepared for what the future holds.
TPOs may want to limit their funders to three rather than fifty. They’ll get more attention, better results and when the market turns south, perhaps a better chance of maintaining the relationships.
Oestreich: Funding sources should treat us as valuable customers when we want info faster and more frequently.
We as brokers should communicate more regularly as to why a customer needs our financing help with a particular piece of equipment or vehicle and what it will mean to their business.
On the same token, it would be great if the additional info was then taken into consideration by the lenders.
Richman: Funding sources and brokers/lessors can work together to uphold high professional standards. The CLFP program is one tool that can be used to help uphold these standards, because obtaining the CLFP designation requires a significant time commitment, a significant education commitment and adherence to standards of professional conduct.
Similarly, membership in any national professional leasing organization can be a way of setting the bar of doing business at a reasonable level because they all require some form of monetary commitment to the industry, as well as adherence to some kind of character/ethical standards.
Brokers/lessors can help by making one or more of these types of investments and commitments in and to the industry. Funding sources can help by choosing to do business only with brokers/lessors who do make these types of investments and commitments.
What can funding sources do to prepare for the next economic downturn?
Burnham: Funders could know the equipment they are financing expertly and specialize in a recession-proof sector. Turn old paper files into actionable intelligence through digitization and monitor disparate data elements with customer relationship management software. Watch the trends. Attend to customers more closely beyond the traditional data sets like FICO or DNB data. When warning signs of a default arise, approach the customer in advance of the default to relieve the customer of the debt burden and remarket the equipment.
Oestreich: Continue to help us serve our customers. Understand these customers come to us because they love and expect fast, efficient and competitively priced service.
Richman: Having been in business for 31 years, I have seen funding sources continue to make the same mistakes over and over again leading up to the downturns. When the economy is strong, funding sources continually ease their credit requirements and increase their application-only limits. Then when the economy slides, they have a whole book of business originated in the prior 12-18 months with sub-standard credits and higher-than-standard credit exposures, often resulting in much larger than expected losses. Therefore, the best practice for a funding source seems to be to hold the line on the credit requirements, exposure and app-only limits.
What role do you see third-party originators playing in the future of the industry?
Burnham: TPOs are the eyes, ears, legs and arms of the funders. I cannot envision a market where the TPO is not an integral part. As funders turn to more and more artificial intelligence and automation and less to human involvement, TPOs will fill in the breach.
Oestreich: I can see us as the way to give the lenders a steady flow of business, as many industries remain robust and need to improve and upgrade their trucks and equipment regardless of how the economy in general is doing.
Richman: Third-party originators will always play a role in the equipment leasing and financing industry for the same reason that local grocery stores will always have a place in communities. There are always people who value personalized service, local character, professionalism and experience. Big banks or large lessors simply cannot maintain the same quality of frontline employees that more nimble third-party originators can.
Anything else you would like to add or say to our readers?
Burnham: Join all the associations you can and attend events. See and be seen with your funders. Funders are people too. If they know you and like you, you’ll get more and better business done together.
Oestreich: It would be great to have funders recognize how hard we work to get new credit applications and to have lenders recognize that sometimes there is a reason to get a fast approval to fund a deal on a timely basis today, rather than sometime tomorrow.
Richman: We all must work honestly and diligently to self-regulate; otherwise we will find ourselves subject to large government regulation – which is what I see as the most damaging and costly risk that our industry faces in the future!
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