Rising Rates & Regulations: The Evolving Landscape for Third-Party Originators

by Rita E. Garwood Sept/Oct 2023
Third-party originators are finding opportunities as traditional funding sources tighten lending standards while regulations and new technologies are simultaneously creating challenges. Monitor reports on the AACFB Commercial Finance Expo and provides insight from brokers on the biggest issues they are facing today.

Rita E. Garwood,
Editor in Chief,

As 2023 enters its last leg, brokers find themselves in a unique position. As banks tighten lending standards, more opportunities are becoming available for third party originators (TPOs) who can help borrowers navigate the ins and outs of commercial finance.

“With banks tightening their underwriting guidelines and the increased rate environment, third-party originators have an opportunity to finance those customers who may have historically used their bank for equipment financing needs,” Carrie Radloff, MBA, CLFP, business development officer at American Financial Partners, says. “Customers have used TPOs in the past as a way to diversify their finance portfolio and not put all of their eggs in one basket with their bank. We are now seeing those same customers coming back to us more often as their bank is not in the running. TPOs have historically done very well in higher rate environments. Rates will not be going down any time soon, which is an opportunity for TPOs to gain additional business.”

Regulatory Requirements

At the same time, brokers face more obstacles than ever before, including keeping up with regulations and the disclosure laws recently passed by several states. Although the Equipment a way to diversify their finance portfolio and not put all of their eggs in one basket with their bank. We are now seeing those same customers coming back to us more often as their bank is not in the running. TPOs have historically done very well in higher rate environments. Rates will not be going down any time soon, which is an opportunity for TPOs to gain additional business.”

“The biggest challenges facing TPOs are state and federal regulations and the constant battle fighting circumvention with our funding partners,” Radloff says. “State regulations and 1071 are affecting the entire industry, but are especially difficult for TPOs to navigate as many TPOs do not have the large legal and operations teams to monitor and handle the continuous changes that have occurred and will continue to occur. TPOs do not have the endless funds to pay for the additional staffing and system upgrades that are going to be needed along with all the paperwork and licensing fees that need to be filed in states like California. We have been in business as a TPO for 20 years and have developed a solid database of vendors and end-users who we regularly stay in touch with through phone and email. It has been increasingly difficult to find the funding partners who value our business and will not circumvent us to call or market to our customers directly. I foresee this to be a continued challenge for TPOs in the future.”

Radloff says it is becoming more important than ever for TPOs to be involved and active in an association such as the American Associate of Commercial Finance Brokers (AACFB) or the National Equipment Finance Association (NEFA), so they can work collectively on these specific challenges and others.

“It will become increasingly difficult to do business as a TPO without being part of an association,” Radloff says.

Keeping TPOS Informed

The AACFB offered a session on Section 1071, as well as various other important topics for brokers, at its 2023 Commercial Financing Expo, which was held in Orlando, FL on Sept. 20 and 21 at Rosen Shingle Creek Resort, bringing together commercial finance brokers, funding sources and service providers.

According to the AACFB, a good mix of new and returning attendees attended the event, with more than 80 people attending an AACFB event for the first time.

In addition to equipment finance, event attendees also focused on various other segments of commercial finance, including working capital, factoring, purchase order financing, supply chain financing and more. Some brokers in attendance were equipment finance veterans and others were adding the product to their toolboxes after focusing on commercial real estate or SBA lending.

“The biggest challenge I see is that equipment financing is a relatively unknown option, particularly in the start-up market which is my focus right now,” Marisol Cruz, equipment leasing consultant for Business Finance Depot, says. “Other financing such as conventional loans, SBA loans, lines of credit come up often in conversations. When equipment lending is introduced, it’s always great to see the ‘aha’ moments as the business owners recognize a viable option is available to them. I view this lack of recognition as an opportunity to educate the small business community about our thriving industry.”

As brokers walked through the exhibit hall, it was clear that new technology players have entered the space, offering services designed to improve underwriting and documentation processes, among others.

“In today’s rapidly evolving financial landscape, third-party originators face a unique set of opportunities and challenges that can make or break their success,” Justin Meyers, president of Your Finance Company & Unisyn Technologies, says. “On one hand, advancements in technology offer unprecedented capabilities for streamlined communication and data analytics, opening doors to more efficient loan processing and customer engagement. However, these same technological leaps also pose challenges in bridging the digital divide among various stakeholders and combating the pervasive issue of non-transparency, which can erode trust and complicate the lending process.” Key highlights from the 2023 AACFB Commercial Financing Expo included:

Women in Finance: A gathering of more than 50 of the best and brightest women in the commercial finance industry gathered at the Women in Finance Breakfast. According to the AACFB, women represented approximately 40% of Expo attendees and 75% of the current AACFB Board of Directors.

Educational Sessions: The Expo offered 10 educational opportunities. Attendees learned how to make more money by implementing strategies to improve efficiency and how to package deals more effectively. A legal panel provided an overview of the non-negotiables of broker agreements, and a panel of experts outlined what brokers can expect from the implementation of Section 1071.

Brokers provided information to funding sources about how to be a broker’s top pick for funding. And funding sources shared details about their funding appetites with brokers. Attendees learned how to use video in their marketing efforts and how to choose the best software systems for their businesses. Newer brokers gathered tips on how to thrive in the industry.

Keynote Speaker: Kortney Murray of Coastal Kapital shared an inspirational story of “Kaos to Kapital,” which challenged attendees to examine their role in the commercial finance industry.

Birthday Surprise: Long-time AACFB Executive Director Monica Harper celebrated a milestone birthday at the Expo, and the AACFB made it a memorable occasion. During the Wednesday luncheon, the AACFB Board shared heartfelt appreciation videos and brought Harper’s family in via Zoom before singing happy birthday and sharing cake with attendees.

“I have been involved with the NAELB/AACFB since 2004 so spending my birthday with this group was very special,” Harper says. “The AACFB Board and members are like a second family to me. I am so very grateful to have been afforded the opportunity to have such a rewarding career and to feel genuinely appreciated for my efforts.”

“We were thrilled with the overwhelming success of the 2023 AACFB Commercial Financing Expo,” Teresa Cranney, AACFB president from American Financial Partners, says. “The planning committee did an outstanding job curating the agenda which was filled with timely information. Many thanks go out to planning committee members Scott Hansen; Tamara McCourt, CLFP; Crystal Murcha; and Carrie Radloff, CLFP, as well as board liaisons, Katie Baker, CFLP, and Laura Estrada. Thanks also to all of the sponsors, presenters, exhibitors and attendees for helping to make the Expo such an outstanding event. We look forward to continuing to grow this event next year when the Expo will be held Sept. 4-5, at the Hilton New Orleans Riverside Hotel in New Orleans.”

ABOUT THE AUTHOR: Rita E. Garwood is editor in chief of Monitor.

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