The Vital Role of the Third-Party Originator in the Commercial Finance Industry

by Carrie Radloff, CLFP Vol. 48 No. 6 2021
Carrie Radloff of American Financial Partners discusses the benefits of working with a third-party originator for vendors and funding partners and explains why this side of the business is here to stay.

Carrie Radloff, CLFP,
Business Development Manager,
American Financial Partners

Third-party originators (TPOs) play a crucial role for the customers and vendors they service and the partners who rely on their expertise and volume of business. TPOs who focus on equipment finance are a sophisticated group of entrepreneurs who care deeply about their customers, vendors and funding partners. A large number of equipment finance TPOs have experience working for large banks or funding sources but they branched out due to their passion and drive to either start their own finance company or go to work for a smaller, more boutique finance company.

Benefits for Vendors

Many vendor-driven TPOs focus on providing financing for the small-to-medium-sized vendors that truly value personal relationships and the opportunity to have a company that can assist in increasing sales. These manufacturers and suppliers are typically off the radar of the big banks but are important to the economy and need to be served. The expertise of these vendors resides in selling the equipment, not in financing, so they tend to be less concerned about advanced technology platforms and customized programs. They simply want someone they trust who will answer their call even outside of regular business hours and take care of their customer so they can close sales. Some of my most successful vendor relationships are with sales reps of vendors that have the technology platforms and customized programs set up with the large banks, but they choose to send their customers my way due to the personal service and heightened communication I provide. These sales reps know that I don’t get paid if they don’t get paid and that I will work hard to find an option for their customer to help close the sale.

Because TPO offices are smaller in size, they are able to be nimble and move quickly when changes occur. The COVID-19 pandemic provided a great example of how this can be beneficial. Many of the large banks stopped funding or significantly changed underwriting guidelines. While these underwriting changes affected everyone in the industry, they were especially tough on small-to-medium-sized vendors. TPOs quickly changed direction and found funding partners who were willing to assist these vendors with their customer applications.

The interruption in the market was a great opportunity for TPOs to form partnerships with vendors that were not happy with changes from their current lending partners. Many TPOs have experienced significant growth during the pandemic, as they have pivoted to the changing needs of these vendors to secure new relationships.

TPOs have a significant benefit to offer vendors, as they have multiple credit boxes and programs to choose from, allowing them to match each customer into a program that fits their specific credit profile and need. In addition, TPOs have the opportunity to cross sell other products to increase their success. As TPOs build relationships and consult with their customers, they uncover needs that can be resolved by providing other financial products outside of equipment finance, including factoring lines, SBA loans, commercial real estate loans, business lines of credit and working capital. Working capital and business LOC programs have been a frequent request recently due to the supply chain issues in the market. Setting up a working capital loan or business LOC has provided these customers with the funds they need to stock up on inventory and/or purchase needed items for a new contract or job.

Benefits for Funding Partners

TPOs are valued by the funding partners that support them for multiple reasons. First, TPOs are less expensive than hiring, training and retaining an internal sales team. TPOs also have higher efficiencies because they know how to correctly vet a transaction and ask the questions that will ensure the full story is being presented. Additionally, TPOs provide value to their funding partners by requesting the additional information needed to make a decision about an application, educating the end-user on the differences between an equipment finance agreement and a lease, talking through questions about the document package, explaining how the early buyouts work and so on. In addition, TPOs scrutinize new applications for fraud and help their funding partners catch those fraudulent applications prior to funding.

TPOs also benefit a funding partner’s portfolio by assisting with collection issues. My past customers are responsive to me and trust me enough to call me back or answer the phone, even in difficult situations. On the rare occasion when collection issues crop up, I have had success stepping in to help my funding partners bring one of my customers current or at least get them to communicate with the funding partner so they can work through the situation. I have been brought in on a few occasions when the funding partner was ready to transition the customer into default and have been able to turn the situation around. Furthermore, TPOs value networking and education. As of Sept. 1, 372 TPOs/lessors have obtained their Certified Lease & Finance Professional designation and many others are involved in industry associations such as the American Association of Commercial Finance Brokers and the National Equipment Finance Association.

TPOs provide many benefits to their funding partners and, in turn, rely heavily on those funding partners, creating mutually beneficial relationship in which there is no circumvention of vendors or end-users. In fact, there are funding sources in the market that have made a conscious decision to only do business with TPOs, giving these funding sources an advantage over those that choose a hybrid model. Lastly, TPOs have a higher level of trust and loyalty in funding partners that only service TPOs, as they know their database will remain secure.

TPOs in the Future

Technology continues to evolve in the commercial finance industry and many banks are pushing for more and more automation. Technology is a great benefit, but it will never fully take the place of a personal relationship. People still want to talk to real people who can answer their questions. Let’s be honest, how many of us hit “0” immediately when we come into contact with an automated system. I’ve hung up in frustration many times dealing with automated phone systems when all I really wanted was to talk with a live person. American Financial Partners made the decision years ago not to have an automated phone system and to take on the extra expense of having a real person answer the phone. It is amazing how many compliments we receive by simply having a real person answer the phone.

TPOs have a wealth of experience and knowledge that are an asset to the commercial finance industry. The TPOs I know are some of the smartest, kindest, most hardworking people I have ever met; they are ethical, professional, successful and should be considered elite members of the commercial finance industry. And, like me, they have a great sense of satisfaction from helping small to medium-sized companies thrive and grow. TPOs will continue to play a significant role in the commercial finance industry for years to come.

Carrie Radloff is a business development manager for American Financial Partners (AFP). She has been in the business since 1998, spending her first 10 years in credit and sales for U.S. Bank Manifest and the last 13 years with AFP. She attained her Certified Lease & Finance Professional designation in 2016 and has been actively involved with the American Association of Commercial Finance Brokers since 2013 and is currently serving as president of its board.

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