Adding equipment financing to your portfolio can increase your bank referrals

Joel Burroughs, Partner in Profit program manager, Innovative Lease Services Inc.

As published in Scotsman Guide's Commercial Edition, November 2005.

Interested in developing a big pipeline of steady business? In a previous issue of Scotsman Guide, I wrote about the power of augmenting your business by adding equipment financing to your portfolio. I discussed how you could tap your existing network of business clients to develop both equipment-leasing and new commercial real estate business. I also talked about the power of developing referral relationships through equipment vendors.

There is another benefit to adding equipment financing to your portfolio. You have greater opportunity to develop referral relationships with banks, which will give you a competitive advantage. These increased referrals stem from the fact that you don't pose a direct threat to banks.

Consider that most banks have fairly strict underwriting criteria. Frequently, they are seeking A-credit transactions. If a bank turns clients down because they do not meet its criteria for equipment or loan financing, the bank risks having those clients go to a competing bank. If a competing bank approves the loan and makes a good impression, those clients might even consider moving their depository accounts to that bank.

Leasing companies, however, do not pose such a threat to a bank's depository relationships. It makes sense for a bank to refer borrowers to a leasing company that can complete marginal-credit deals. If the leasing company completes the deal, then the client is happy with the bank's referral and the depository relationships are safe. Everyone wins.

The same principle applies to your commercial mortgage business. If you have private money sources that can fund a loan, then banks will often happily refer business to you to keep their customers from potentially working with one of their competitors.

Sometimes banks will even refer you A-credit transactions that simply don't fit their strict requirements. For instance, one broker who recently started offering equipment financing was visiting a bank that gives him regular referrals. He mentioned to the bank that he was now doing equipment financing. It turned out that the bank had a good-credit borrower who was approved for a $900,000 equipment loan but who couldn't come up with the required down payment. The transaction was then referred to the broker. His leasing company could do the lease with just the first and last payments required upfront.

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