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   ARTICLE   |   From Scotsman Guide Commercial Edition   |   November 2005

Expand Your Horizons

Adding equipment financing to your portfolio can increase your bank referrals

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.

So, how much money can you make with bank referrals? Quite a bit. If 10 banks each refer one transaction every month, that’s 10 new transactions a month. Assuming five of them fund with an average $2,000 profit, that’s an additional $10,000 in revenue each month. As you develop more bank relationships, those numbers can increase substantially. Further, as their confidence increases in you, banks will refer you more business. Some of those referrals will be those tough-to-do commercial loans that they trust you to handle.

The leasing company with which you choose to work will be an important factor in the success of a bank-referral program. The company should be able to handle a wide variety of transactions, including startups and B, C and D credits. It is also important to work with a company that develops and fosters long-term relationships. Many clients will want to do additional business with you in the future, both in terms of their equipment and their real estate needs. Taking care of your clients in the long term gives the bank even more confidence in you.

A bonus is that bank referrals work in synergy with other types of referrals. For example, every bank referral can lead to an equipment vendor. As you develop those vendor relationships, you could start getting regular referrals from vendors whose customers need help financing equipment. Of course, they’ll tend to do more financing as their business grows and will refer their colleagues to you.

Bank referrals are just one more way you can make money with equipment leasing. There is a tremendous benefit to financing equipment in addition to financing real estate. Business-owners need financing for their equipment as well as for their real estate. By providing both, you position yourself as the one-stop shop for all of their financing needs.

Helping startups and business-owners with marginal credit obtain the equipment they need will set you apart from the other commercial mortgage brokers. Those relationships will result in additional financing business as they continue to expand and grow their businesses. Combine those relationships with powerful referral relationships such as those with banks, and you have a tremendous advantage over the competition.


 


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