Gary Souverein President & COO, Pawnee Leasing Corporation

Fresh out of college with a finance degree in 1993, Gary Souverein applied for a credit processing position at Pawnee Leasing Corporation. Little did he know at the time that he had found what would be two constants in his life: a career in leasing and his professional home. In 2005, he became Pawnee’s president and COO and subsequently led the company through an IPO in 2006 as well as the country’s economic recession.

Pawnee was founded in 1982 and specializes in equipment leasing to smaller, closely held business enterprises, generally startups or more established businesses with less traditional credit profiles. In May 2006, Chesswood Group Limited, a public financial services company in Canada, acquired Pawnee.

“Our structure is really quite simple. Since our company’s founding in 1982, we were a closely held independent. In 2006, Chesswood completed an IPO for around $60 million, the proceeds of which were used to acquire Pawnee. Today, Pawnee Leasing is a U.S. corporation and largest subsidiary representing about 75% of the net assets of our Canadian public parent, Chesswood Group Limited. Chesswood is traded on the Toronto Stock Exchange under the trading symbol CHW. Chesswood provides a very supportive environment for Pawnee, centered on the objectives of long-term growth and profitability,” Souverein explains.

Making Pawnee unique in the equipment leasing industry is its exclusive use of brokers for all originations. Even in an era in which others have abandoned the use of brokers, Pawnee unwaveringly adheres to its business model using the broker channel. In fact, Pawnee prides itself in its broker support and training. Pawnee’s website hosts what it calls the industry’s first online lease sales training center for equipment leasing brokers. Pawnee’s brokers also have access to a secure online lease documentation preparation program, guidelines, rate schedules, industry-specific selling tools and marketing promotions.

“We are broker centric!” Souverein enthusiastically explains. “There’s probably no company in this year’s Monitor 100 that can say they originate 100% of their business from brokers; we do. Our ‘Tribe,’ as we affectionately call our staff, has a well-developed culture and understanding that our brokers are our sales engine — without them we have no business, and it’s a symbiotic relationship. Contrasting with so many funders abandoning the broker channel, our success is largely attributed to being an expert in serving this channel. Brokers have unique needs and we have built our entire business — in our people, products, processes and systems — on trying to help them be successful. Those that left, never really were dedicated to the channel in the first place and their presence in the channel was merely a way to temporarily accumulate assets.”

Pawnee’s typical deals range from $1,000 to $50,000, providing business equipment leases up to $50,000 for B+ credit profiles, $35,000 for startup and B credit profiles, and up to $15,000 for C credit profiles. Pawnee’s credit analysts offer its brokers personalized, subjective consideration in determining the risk and viability of each deal.

“We think we’re very unique, offering efficient and easy-to-use products that help our brokers distinguish themselves from their competitors. That’s to say, most small-ticket lessors do ‘standard’ credit for tenured business at low rates. Our products are much broader and therefore our brokers are able to originate in a much wider range of credit risk, making them a more valuable partner to their customer relationships,” Souverein notes. “Historically, our primary underwriting was for true startup businesses and less traditional tenured credit profiles. Post cycle, we have become a more significant funding source to our brokers in the B+ market, offering risk-based pricing between 14% to 26%.

“We believe a strong attribute of our business is not only our experience with the broker channel but our hands-on, common sense style of doing business. Our 40-person staff doesn’t hide behind scoring models and is empowered to make independent, subjective, prudent decisions with the help of quantitative tools. We like to think that we make a more difficult credit segment easy,” he adds.

With a strong parent company, successful business model and years of experience in its favor, Pawnee survived the economic downturn by anticipating and preparing for the crisis. Tightening the reins early in the downturn positioned Pawnee for a strong recovery.

“Why do you think Pawnee has been successful and survived the credit cycle? Experience, a robust business model and most importantly, credit discipline in the face of irrationality, despite the consequence of a shrinking portfolio. Internally we identified that our competitors were mispricing risk and found some competitive behaviors to be completely irrational. We also saw the economic deterioration earlier than most due to the character of the weaker credits in our portfolio. While some of our competitors continued their irrational behaviors until late 2008, we had already restricted credit parameters by that time and when significant industry correction took hold, we were already two years into contracting our business. That discipline, while unpleasant, laid the framework for the strong position we find ourselves in today,” Souverein says.

Today, Pawnee anticipates continued success and has in place a long-term credit facility provided by a bank syndicate group led by JPMorgan Chase. “Our discipline and business model has put us in a position of strength within the industry and we see ourselves continuing to capitalize on that market opportunity,” Souverein notes.

“In addition, the future for the independent broker is very bright. The truth is, there has been a cleansing, albeit painful, in our entire industry. This was needed following an obviously overheated credit environment, and we believe a healthier environment will emerge. While it may be a slow process, there will be new entrants on the funding side of this business as demand increases,” he adds.

However, despite Pawnee’s stable footing, Souverein feels the immediate outlook is still shaky for the industry overall: “Unfortunately, we believe there are months of continued uncertainty ahead. Housing had such a significant role in supporting our industry by aiding both equipment acquisition and portfolio performance. Home equity has evaporated and is likely to erode further in 2011. This fact, along with stagnant business revenues, higher fuel costs and the general cautious sentiment of the small business owner will continue, in our opinion, to mute demand into 2012.”

Always eager to learn and grow, Souverein is clearly grateful for the experience and education that Pawnee has afforded him. In addition, he takes advantages of the benefits of participating in industry trade associations, particularly the National Association of Equipment Leasing Brokers (NAELB) and the National Equipment Finance Association (NEFA).

Touting the benefits of association participation, Souverein says, “We’re active in both associations, of course, and I’ll point out the benefits with several questions: How do you really understand what’s going on in your profession if your company isn’t involved in its trade associations? How can you keep a finger on the pulse of macro trends in the industry, interface cost effectively with your most valuable business partners, your funders, and glean ideas to improve your business from your peers? Would you want to compete with an association member who likely has greater knowledge and resourcing abilities than you do?”

After 18 years in equipment leasing, Souverein could be considered a veteran, and his loyalty to the industry and Pawnee are part of his personal identity. What keeps him in the game is quite simple: “I’m unemployable outside leasing!” he jokes. “Eighteen years with the same business card is uncommon in this business. I’m attached to this industry and to Pawnee. I love coming in each day trying to contribute to the success of our customers and the ‘Tribe.’ While I’ve had an invigorating ride helping bring Pawnee along from a small five-employee independent 18 years ago, through an IPO in 2006 and surviving the great recession most recently, I’ve never been more bullish about Pawnee, and I think our best days lie before us.”