Equipment Financing is Ripe for Automation

by Vernon Tirey

Vernon Tirey, a 30-year veteran in enterprise automation solutions, is the co-founder and CEO of LeaseQ, a marketplace bringing automation and efficiency to small business borrowers looking to finance equipment to start and grow their businesses. LeaseQ’s proprietary cloud-based platform streamlines the equipment finance process for business borrowers, equipment sellers and equipment financial services companies.



LeaseQ’s CEO Vernon Tirey explains why the equipment financing industry is primed for automation, pointing to the need for the industry to become more customer focused and to implement automated underwriting in order to take advantage of the significant opportunity automation can provide.

Five years ago I was introduced to the equipment financing industry. Having implemented enterprise-wide automation solutions for large financial services companies, I was surprised that the industry is vastly manual. After studying the industry, and talking to lots of business owners, equipment sellers and lenders, I learned three things:

First, the industry is not very customer-focused. For borrowers, financing equipment is a miserable, painful process both in shopping for financing and getting a quote, and getting funded.

Second, there is not a lot of activity or opportunity online. Quality equipment finance deal flow is found at the equipment vendor.

Third, few finance companies have automated underwriting. This last point is especially bad news. Due to the fact that an automated marketplace must provide reliable instant quotes to effectively match borrowers and lenders, an automated underwriting engine is critical. Rather than tap into the underwriting engines found at lenders, I was going to need to build an underwriting engine and work with the credit department at each lender to develop an effective solution.

Even though the industry is ready and eager for change, adding automated underwriting, advanced analytics and customer-focused strategies is a lot of change management for lenders. I was recently at a conference session on electronic signatures where one banker turned to another and whispered, “Do you take electronic signatures?” The second banker said, “No, not in equipment financing, but all the other departments in the bank use it.” Clearly there’s a need and lenders want to automate, but change is hard and equipment financing is a messy industry.

While most marketplaces like Amazon, Travelocity and eBay have two parties (a buyer and a seller), equipment financing today requires a three-party marketplace with borrowers, lenders and equipment sellers. Add the fact that there are different classes of credit (A-D) and upwards of 30 equipment vertical markets (e.g. medical, farming, construction, transportation, etc.), a variety of business types (corporation, sole proprietor, municipal, etc.) and a variety of loans and leases for large-, medium- and small-ticket financing, and you have yourself a fractured and archaic marketplace that’s ripe for automation.

Fortunately, the entire industry seems to agree that small ticket financing needs to be automated. Despite the challenges, leading small-ticket lenders are starting to automate the finance quote process so that borrowers can see their personalized monthly payments in seconds. These efforts include electronic signatures, automated, real-time, business and consumer credit pulls, soft credit pulls for quotes prior to application submission, pre-qualified and pre-approved quotes and vendor-generated quote solutions and sophisticated managed services solutions.

Automating the lending process improves the borrower’s experience by reducing processing time, increasing accuracy and transparency while mitigating costs and fees. More than ever before, customers are looking for instant gratification, and the days of waiting 48 hours for a small-ticket equipment financing quote are coming to an end.

Automation of instant quotes is critical for brokers, lenders and vendors who want to close an equipment sale when the customer is ready to buy. Instant quotes allow equipment finance companies to increase conversion rates and borrower satisfaction, improve operational efficiencies, and stay competitive when serving vendors.

So what happens to a lender that doesn’t automate? JP Morgan Chase CEO, Jamie Dimon’s cry that “Silicon Valley is coming” is a bit premature, from my perspective. Equipment financing automation may be 10 years behind its counterparts in the insurance, credit card and brokerage sectors, but it is still five years away from worrying about alternative financing. Traditional lenders who automate now will win significant market share. Stealing tools, technologies, and techniques from alternative lenders in the B2B, consumer and real estate financing space is a great way to identify and adopt best practices.

Leaseq1

 

There are three types of alternative financing groups to look out for: online lenders such as Kabbage or OnDeck, marketplace lenders such as Funding Circle and Lending Club and borrower marketplaces such as Lendio, Fundera and LeaseQ.

Many traditional financial institutions are partnering with alternative finance groups for their advantages. Alternative finance marketplaces involve five steps and typically fund the borrower in just 3-5 days, while traditional equipment finance companies go through eight steps and take up to 13 weeks to fund, because they have multiple lenders, multiple vendors and multiple payment options. But there are some things traditional equipment financing companies do well. The chart below helps explain why alternative lenders have some significant hurdles to clear before becoming a competitive threat in equipment financing:

leaseq2

There are three things we can learn from alternative finance. First, put the customer first by building long-term relationships with profitable borrowers of all credit profiles. Second, automate, automate, and automate. Third, origination is the name of the game. These platforms are running out of deal volume and competing with each other online and they will turn to vendors next

There’s no company out there today that would say it shouldn’t automate. The key is figuring out the best way to move forward. There’s significant opportunity for alternative finance platforms and traditional finance lenders alike to grow in this marketplace.

We all want to work with lenders who are innovators and early adopters–the companies trying new stuff. Early adopters will have the competitive edge, and as with any industry, you have to get the timing right. The accepted premise is that every new technology goes through the Gartner hype cycle. The first stage is hype, as the search for the next big things lead to hype around any new technology. Then there is the struggle stage, where the adoption of these “bleeding edge” technologies depends on the visionaries who had the vision, energy and money to make it work. Finally, there is success in which mainstream adoption occurs due to the convincing of pragmatists who needed success stories and a support system around the technology.

But because equipment financing is so late to the automation game, the tipping point will come quickly; the dominoes will fall because a certain number of adopters or companies saturate the game. At that point, any newcomers will have already missed their opportunity.

The time to automate is now, and the industry is eager to do it. It’s not a matter of if automation will happen, but a matter of how quickly it will happen and who will miss out. There’s a 12 to 18 month window for traditional finance lenders to either get their act together or form mutually beneficial partnerships—if they don’t, the alternative lenders will come to get them.

Vernon Tirey, a 30-year veteran in enterprise automation solutions, is the co-founder and CEO of LeaseQ, a marketplace bringing automation and efficiency to small business borrowers looking to finance equipment to start and grow their businesses. LeaseQ’s proprietary cloud-based platform streamlines the equipment finance process for business borrowers, equipment sellers and equipment financial services companies.

Leave a comment

View Latest Digital Edition

Terry Mulreany
Subscriptions: 800 708 9373 x130
terry.mulreany@monitordaily.com
Susie Angelucci
Advertising: 484.459.3016
susie.angelucci@monitordaily.com

View Latest Digital Edition

Visit our sister website for news, information, exclusive articles,
deal tables and more on the asset-based lending, factoring,
and restructuring industries.
www.abfjournal.com