New Streams: Marlin Seeks to Parlay Small Business Expertise

by Phil Neuffer Monitor 100 2017
In his first year as president and CEO, Jeffrey Hilzinger has been at the helm of a rejuvenated Marlin Business Services, which has its sights set on being more than just a small-ticket equipment financing company.

Marlin Business Services celebrates its 20th anniversary this year. For much of that time, the company has sailed along on sustained success from its work in the micro-ticket equipment finance space. In 2016, Marlin once again had a successful year of growth, increasing assets from $682.4 million to $796.7 million, while new business volume jumped to more than $500 million.

However, it was not just on the balance sheet that Marlin experienced change. Last year, and in the first half of this one, Marlin began to evolve and branch out, helping to diversify its offerings, increase market share and serve customers at an even higher level than before.

This new path has its roots in the hiring of Jeffrey Hilzinger as president and CEO in June 2016. With Hilzinger at the helm, the company continued on its upward trajectory, increasing originations by a sizeable margin. Hilzinger says there were three things Marlin accomplished in 2016 that led to the success.

“First, Marlin entered a series of new equipment channels over the last two years, including transportation and franchise, that really helped our growth. The second was the introduction of new products like Funding Stream, our working capital loan product. The third was, I think, that there’s been a recognition, and I certainly have supported it, that Marlin needs to price its offerings at market to improve its competitiveness,” Hilzinger says.

In addition, Hilzinger says Marlin benefits from a unique approach to vendor finance, which helps to distinguish the company from many of its competitors.

“It’s a very different vendor model than what most of us think of when we think of the vendor business,” Hilzinger says, explaining that many of the thousands of independent equipment dealers that Marlin works with rely heavily on Marlin to help their customers through the financing process. “Because of the retail nature of our dealer relationships, we are able to establish very close relationships with our end-users and, unlike most traditional vendor models, Marlin is able to do repeat business with the end-user.”

Marlin has doubled down on these repeat financing efforts by reorganizing its sales force, creating a dedicated direct origination team responsible for following up with end-users after the initial transactions.

“It’s a natural extension to think about doing more business with our end-users,” Hilzinger says. “Marlin had been doing repeat business over the years but had never created a dedicated sales force around the effort. With approximately 300,000 lifetime customers, 70,000 existing customers and 2,000 plus new customers per month, we’re in a unique position to create a significant business around our end-users.” According to Hilzinger, “Having credit-adjudicated over one million small businesses in the 20 years we’ve been in business, Marlin has created a tremendously unique and under-leveraged asset in its relationships with so many qualified small businesses.”

Marlin 2.0

But Marlin doesn’t just want to be a micro-ticket vendor finance company anymore. That’s where Hilzinger and his team’s newly-created initiative comes in. Dubbed “Marlin 2.0,” it is a strategic plan that will carry Marlin past its current identity and into an expanded one.

“We created a new vision, mission and statement of values for what we refer to as Marlin 2.0, and as part of that process we created a new business plan and strategic objectives for the next three years,” Hilzinger says.

Earlier this year, Marlin accomplished one of its many goals by acquiring Horizon Keystone Financial. This is the first acquisition by Marlin in the last 18 years, according to Hilzinger, and it allowed the company to expand into the office furniture, heating/ventilation/ cooling and automotive equipment segments.

With the addition of Horizon, Marlin benefits in two ways. It’s already imbedded in the office equipment and healthcare equipment space, so its reach in each of those segments is enhanced. Second, new offerings such as transportation and franchise finance broaden Marlin’s reach beyond its current coverage. Factor in Marlin’s unique ability to manage small business credit risk and you have a basis to believe the company’s growth trajectory is likely to continue.

Small Business Expertise

“What Marlin’s particularly good at is not necessarily focusing on particular equipment types; it’s just really very adept at underwriting small business credit,” Hilzinger says. “Given this expertise, my perspective on Marlin is that rather than just stay in equipment finance and try to move up ticket, it’s better to embrace our micro- and small ticket expertise and leverage it across more products so we become even more relevant to small businesses.”

With 20 years of experience lending to small businesses, Marlin realized that it was ignoring areas of potential growth by depending so heavily on a narrow product set.

“Marlin 2.0, in effect, is pivoting from being a single product microticket lessor to a multi-product lender to small businesses. We’re using our small business underwriting expertise and our ability to attract customers efficiently through our equipment dealers to sell more than just equipment finance these days,” Hilzinger says. “One of the strategic objectives that will become more important in the future is to initiate or acquire the ability to provide additional products to small businesses. Ultimately, we want to be able to pivot from selling just products to selling solutions to small business. That’s really the essence of Marlin 2.0.”

Funding Stream

One of the unique offerings Marlin has added to its arsenal is Funding Stream, a product built to contend with marketplace lenders who have begun to threaten the small-ticket equipment finance space.

“Funding Stream is basically a short-term, unsecured lending product to small businesses, which is designed to compete with what marketplace lenders are providing today,” Hilzinger says. “It was originally conceptualized and implemented primarily as a defensive response to what was seen by Marlin — and rightly so — as a competitive threat to our equipment finance business.”

The Funding Stream product was already in market and being originated when Hilzinger joined Marlin, and he immediately recognized just how well it worked with the strategy he hoped to employ.

“It was strategically perfect for 2.0 because it is a product that is clearly in demand by small businesses as is evidenced by the growth in the marketplace lending community over the last five years,” Hilzinger says.

Of course, there are some significant uncertainties to the product, especially from a credit standpoint, where its performance is largely unproven over a credit cycle. However, compared to other marketplace lenders, Marlin’s approach to this product is unique given that close to 80% of these loans are being originated with existing end-users. Because Marlin has servicing experience with these customers and they were previously adjudicated under Marlin’s proven equipment finance credit models, some of this uncertainty is alleviated.

“I think continuing to work through our equipment dealers to get that first deal and then bringing multiple products, including Funding Stream, to a second, third or fourth deal allows us to use our proprietary credit experience to the benefit of both Marlin and our customers,” Hilzinger says. “Marlin is in a very unique space to help small businesses grow.”

Marlin’s new strategies and initiatives are a direct result of the changes in the equipment finance marketplace. Hilzinger believes the threat posed by marketplace lenders and fintechs is real and should not be ignored.

“From our own experience, we know that marketplace loans are often used to purchase equipment, so I do think on the small- and micro-ticket side there is definitely a competitive threat, which I don’t think the rest of the industry takes as seriously as we do, or as I think they probably should,” Hilzinger says. “If for no other reason, the fact that these competitors have been able to penetrate the market so quickly shows that even small-ticket’s longstanding value proposition of speed and convenience can be deeply disrupted.”

With the economy and capital spending major concerns for Hilzinger and his team going forward, he is happy to report that Marlin had record origination volume in Q1/17 and that the rest of 2017 is faring well, buoyed by small business optimism and the need to acquire equipment to support growth.

“Because Marlin has almost 70,000 small businesses in its portfolio today, the portfolio really acts like an index on small business performance across the U.S. Anecdotally, the feedback we get from our customers is really a continuing sense of optimism, which is a very good thing,” Hilzinger says. “From what I see, I think the industry itself is having a good year and so long as the economy continues to perform as it has, I think the industry will continue to enjoy success.”

Whether the good times hold or storm clouds enter the space, Marlin is clearly ready and willing to adjust as it navigates its way forward.

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