Rick Wilbur Founder & Managing Partner, Charter Capital

Heather von Bargen President, Caladesi Capital

Brian Bjella President, Grandview Financial

June Sciotto Owner & President, Regal Finance

Brian Montgomery Owner, Express Funding Solutions

Last year’s Monitor Broker Roundtable participants stressed the relationship with their funding sources and their clients. And while they foresaw murky forecasts on the horizon, they were determined to do business as usual. By doing this, they are able to maintain the high levels of activity most were experiencing in 2006 and expected to continue into 2007.

One participant even noted that he was waiting for the “next shoe to drop,” saying that even in normal credit cycles, there are a few good years followed by a downturn. Could he have been foreseeing the future or just staying in tune to past industry trends?

The times have changed quickly and ferociously. In one short year, the subprime real estate market staggered and with it many have felt the pinch. As we move further into 2008, all confirm the tightening of credit but remain positive, one that we’ll see it through, and two that working on the core goals of their respective companies, they’ll come out on the other side just fine.

They also all see this as a chance to weed out the problem children — those that pushed through the risky deals only to see them blow up in their faces or take longer and longer to close. What do brokers say can be done in partnership with their funding sources to ease the strain? While they remain upbeat that strengthening existing relationships and performing even greater due diligence is the key, they do admit to seeing some tough times ahead.

Staying Strong But Cautious
According to Rick Wilbur, founder and managing partner of Charter Capital, his company ended 2007 very strong. “Our backlog is extremely strong and extremely large. I think 2008 is going to be a good year for us,” he says. The company recently opened up two new offices in Albany, NY, and Boston.

But with all the positive news, he definitely notices things are indeed different. “The unknown, however, is the unknown. If the economy really suffers, I don’t know what the consequences are going to be… I think the most prudent thing for us and for businesses in general to do is to really pay attention to the economy and to observe how whatever happens is influencing your business, and to be very nimble and not afraid of making changes on the fly.

“To prepare for the coming year you have to stay alert and be constantly thinking about what is going on and what changes we can make that will improve our businesses. Companies that will sit back and ponder can get hurt,” he adds.

Heather von Bargen, president of Caladesi Capital sees more opportunities in the coming year. “This economy will weed out the weak. I see 2008 as an excellent year to focus on the basics and to employ best practices. The potential in this industry is spectacular … because regardless of how bad everyone thinks the economy is, and how much negative economic news we hear, … there will always be a need,” she says. “There will always be equipment vendors… This is a business that will always drive the nation’s economy.”

She does see banks suffering as the ripple effects of the subprime mess as well as other factors in the market continue. “I predict we are going to see some banks exit leasing and focus on their core products and services. But the strong will survive.”

As the president of Grandview Financial, Brian Bjella also recognizes the challenges ahead. The issues and facts supporting a weakened economy are “all very real and strong catalysts for issues, but I think the mass media barrage telling Americans every minute of every day that things are bad fuels paranoia and fear. Those emotions are more concerning to me as it has a major impact on consumer and business spending, and it won’t be overcome by lowering interest rates or tax refunds…”

For Grandview Financial, he sees a slowdown in capital expenditures. “If the overall pie is smaller and we’re not doing anything different as a company, then our piece, would be inevitably smaller.” Therefore, his company is being proactive this year by communicating its business plan internally and to its business partners.

“We can only control our actions and our success and we have to mitigate external factors, but it will be a challenging year, yes. On the flip side, we view it as a good opportunity because where there’s chaos and change, there are opportunities, especially if banks and major lessors start managing their relationships with fear.”

June Sciotto, owner and president of Regal Finance, sees an obvious slowing of business that will continue throughout 2008. “The banking industry difficulties and the credit tightening should push more businesses to us for financing because we are not as ‘hard rule’ as the banks are,” she says. Sciotto also believes brokers need to be more careful in checking applications. They need to make sure “that what we’re going to send to our funding sources is good because they’re going to tighten up at their end, and they are going to tighten up on us in the long run; they’ll make the restrictions a little bit tighter.”

However she remains positive. “I am an optimistic person, so even when things are slow I always say it will be better next week or tomorrow or around the bend. I never get really depressed like a lot of people about this. I’ve been here 21 years … and we’ve always survived these natural business cycles.”

She also notes that Regal Finance’s niche market is in healthcare, which is constantly growing, upgrading equipment and in need of brokers and funding sources. The industry she says, “is more resilient to recession because everybody always needs healthcare. Our biggest problems would be to get the banks and funding sources to accept their published credit criteria, and not look for reasons to reject some of these applications…”

As owner of Express Funding Solutions and current president of the NAELB, Brian Montgomery also notices a downturn, but he’s not sure it’s a negative thing for a small-ticket leasing broker. “I have to admit that as easy money has faded away and mortgage companies have gotten their up and coming, this has impacted the typical equipment leasing broker but it has been a positive impact. I see 2008 as being a banner year for brokers who are willing to embrace what sets us apart… Our business is all about being agile and able. Agile enough to adjust quickly to what our clients really want and able enough to match our clients’ needs with our underwriters’ products.”

Fighting More Than the Economy
The brokers paneled foresee other challenges within the industry and within their own walls, but have ideas and plans for combating both. Bjella says Grandview constantly battles sales growth, but admits it may be more intense this year. “We view ourselves as a sales and marketing organization first and foremost, so the challenge every year, is how are we going to grow our business both top line and bottom line?”

Funding diversification is another concern, but Bjella states the company has great funding sources; he just worries about its strong reliance on them. “Our success or even lack of it can be dependant on others’ decisions and that’s not always a healthy thing for a company.” With the industry “dynamics we face today, it accentuates this concern for us,” he adds. To lessen this alliance, Grandview is developing new relationships with nontraditional funders, while maintaining strong ties with its primary sources.

To deal with this challenge, Grandview continues to focus on its three core niches, including spa/salon, convenience store and technology financing. It is spreading out into two new areas — medical and telecom — this year. “We’re really focused on these niches in trying to provide value to our customers. We want to be quick to the punch when opportunities present themselves,” Bjella explains.

Wilbur is also working harder to educate his funders on Charter’s niches. “We do an awful lot of business in home healthcare, and lenders don’t understand that business. Consequently, they’re not prepared to provide funding that fits. So there is an educational process and there is a credibility process — we’re asking them to do something differently than they’ve done before. Lenders are very reluctant to do that.”

He says he’s concerned the company will have trouble finding enough lenders that can accommodate the business as it continues to grow. This is especially worrisome in the current economic climate. “There are too many companies that lowered their credit standards and they’re going to have portfolio issues, performance issues and, as a result of that, I think they’re going to narrow their buying windows.”

Montgomery also worries about “the health and welfare” of his funding partners, which he has spent years building into a true partnerships in it for the long run. “It is a concern for us as we watch the rippling affects of the mortgage industry and how it affects our current underwriting partners. When you see your partner in distress, it is cause for great concern because you realize how fragile your investment might be.” He feels in this type of situation, like Bjella, it is wise to be diverse in a company’s funding sources. “We still have our favorites, but recognizing that the future can be uncertain, it makes sense to know your alternatives if your favorite is suddenly no longer around.”

Sciotto admits the current state of things is affecting her company’s ability to get deals done. “Applications that would fly through a month or two months ago are now being rejected with nothing we can do to get them back.” And, Regal makes it a policy to heavily scrutinize its applicants to maintain “high approval submission rates with our funding sources… If we have to do a little bit more, we will, but we’ve been very, very good about that over the years — we check every avenue we can.”

Von Bargen sees a whole other challenge: maintaining the company’s largest investment and asset — its people. “I need to tap into their talents and creativity to foster development and growth.” As Caladesi’s employees work to tap into a new source of customers — by cold calling, hitting the streets and marketing — to form new vendor relationships, von Bargen feels she also needs to provide her employees with the “necessary tools to ensure their success and future opportunities.”

As far as the industry’s biggest challenge, von Bargen says we need to find a way to restore its positive reputation. “Leasing is still viewed by many to be a dirty word, and when you read what happens with regard to all the legal actions being taken, it’s not helping our cause at all.” She says this is something both industry professionals and the various associations need to address. In the end, as what usually happens, the industry “will just get weeded out or we’ll end up getting regulated.”

Wilbur also agrees that fraud has become a major concern. “Eventually, that’s going to scare people away, it’s going to scare funding out of the business… I think our industry in general is getting a bad name and I think it’s justified. And that disappoints me. My children are in my business, and they’re going to have to deal with that for many years to come.”

Sciotto sees an industry where there are a lot of inexperienced people closing deals. “People who want to be leasing brokers … need to be sure they’re qualified and can handle the responsibilities of being a broker … that means really scrutinizing your sales reps and also scrutinizing your applicants.”

Portfolio performance is a concern for Bjella, “Delinquencies and bad debt have risen. They’ll more than likely continue to cause hardship for lessors in 2008… With new concerns of portfolio, it really impacts management’s short-term decisions and takes away focus from growing their business into a crisis mode.” When that happens, there becomes more scrutiny from a lessor’s capital providers and then, he says, it turns into a “double whammy effect — and challenging to manage.” In order to avoid this mishap? Stay calm. “Focus on what the real issues are in your portfolio. Identify them and put real resources to it … and then learn from it.”

Strengthening the Partnership
In this uncertain market, it’s even more important to work better with funding sources, and most of the participants agree that the credit tightening has impacted the approach to deals. Montgomery utilizes more supporting information from a variety of sources to understand more of the client’s business and why it’s important to do business with them. “You build a reputation with your underwriter that you know your deals, and in some cases, that is the key between success and failure.”

Bjella notes that nothing has changed in his company’s partnerships so far, and the company will continue to take a proactive approach in monitoring its portfolio. Grandview, most of all, is making sure the partnership’s stability remains intact. “Knowing you have a stable source that can be there in good times and bad, that’s crucial.”

Having reliable as well as stable partnerships is key for Sciotto. A funding source’s credit criteria has to be reliable and it needs to have a “reasonable recognition” of what she calls the gray areas. “We need fast decisions because we are in a very competitive market and we need efficient paper flow… It has to be efficient or you lose the deal.”

Von Bargen maintains that because Caladesi has such strong and already established partnerships in place, it hasn’t seen a change so far. “We’ve partnered with predictable, stable and responsible funding sources whose credit standards don’t change with the economy… We send the right credits to the right lenders, and when credit is deteriorating, it gives brokers an opportunity to demonstrate their value with lenders and lessees in finding the right home for their deals. She also notes that long-term stability is important with the “upheaval” in the industry.

Wilbur admits he hasn’t seen a change in his funder relationships. “We’ve seen rates go down and the credit windows with lenders that we’re working with remain relatively stable. They just want more of what we do and I wish I could provide it.”

Staying Ahead of the Pack
Every company has its own way of standing out in a sea of competitors and these brokers are no different. As Bjella puts it, “We all sell money and it’s all green. So, differentiation is crucial.” He adds that the company tries to differentiate from competitors by focusing on its people.

“Grandview Financial’s goal is to be the best company to work for, and then, and only then, will we be the best company to do business with. And it has to be in that order.”

According to Wilbur, his company stands out by believing a portion of the business population will support its value proposition. “We have a lot of customers out there and not everybody is our customer. As long as we can continue to find who our customers are and work with them, we’re fine… We want to provide value; I want to earn my money, I want to earn the deals.” Charter goes even further by counseling each customer on the nuances of the package based upon their individual financial conditions, the market and the lending community.

Express Funding Solutions’ Montgomery notes that investment in its customers is of utmost importance. “We have to approach every transaction with a real dedication to helping our clients be successful. When you’re truly focused on your client’s success, your own success will soon follow.”

Von Bargen agrees. “We’re not going to be a good fit for a lot of vendors or funding sources. We exist to make our clients look good and succeed… We’re not going to be all things to all people,” she adds, because “we’d rather do good business than just business.” Caladesi specializes in customer service and communication, and she notes, “We overwhelm them with information with regard to the status of their applications.”

With its niche market focus for Regal Finance, it’s all about the customer. The company services its customers “unbelievably,” Sciotto says. “We answer the telephone. There’s no voicemail in this office.”

As we move onward, all brokers seem ready for the challenge and instead of worrying about the future, they are ready and waiting to meet it head on. “I don’t think the sky is falling on America,” Sciotto predicts. “The markets and the media always overreact. And nothing bad is going to happen here. Things are going to progress and evolve as they always have.”

For von Bargen, employing best practices and staying true to your ethics will help many companies weather the storm. “Employing ethical best practices, fully disclosing information to funders and partnering with funding sources who are like-minded and relationship-oriented is paramount to our success. I encourage other brokers — especially those who are new to the industry — to consider employing similar strategies.”

Bjella also offers some advice. “Another cycle is upon us. It seems the length and the frequency of these cycles continues to shorten… I truly feel that over all the equipment finance companies are better poised with stronger balance sheets in reserve than we were back in 2001… But challenges create opportunities and those that execute well will do well.”