Equipment Leasing Brokers Ignored by Big Banks?
Let’s be very clear here – Banks are ZERO RISK PLAYERS!!!!
Large FDIC and OCC regulated Banks that have been classified as “Well Capitalized” are generally focused on three categories;
- Growing the Asset base
- Improve the efficiency ratio
- Keep NPA’s under 1%
Everything they do and decisions made are impacted by these three key drivers! Brokers send transactions to large Banks for obvious reasons, core deposits, avoid “reputation risk” and most importantly – Banks pay Brokers. What they don’t realize is that the key drivers for success in banking today work against the Brokers client’s best interests.
The vast majority of equipment purchases in the United States are under one million dollars. Transactions of this size do absolutely nothing to move the needle when it comes to growing the Asset Base of a bank. Transactions that a broker might bring to the bank are slow walked – no decision is a decision. They wait for the Broker to move on showcasing just another reason why legitimate, hard-working equipment leasing brokers are ignored by big banks.
If a Bank had to gamble on which demographic would keep their NPA’s under 1% and they could choose a 6 year old company with top line revenues of 27 million and compiled financial presentation or a Fortune 1000 company with top line venues of several 100 million and an Audit for financial presentation which do you think they would choose?
In addition to that, Banks want to do more with less people. Fin-tech has taken over consumer lending. They are cutting full time equivalents and turning to automation, as they should. Payroll is a huge fixed expense that works directly against their efficiency ratio. Banks are also exiting the Brick and Mortar model of Banking in favor of the “online” model. Why? It dramatically improves their efficiency ratio. Banks want Audits because they can make decisions on transactions with fewer employees. Transactions from a Broker that have compiled statements get the slow walk treatment.
When a broker presents a typical mid-market transaction for 1/MM with internally compiled statements it automatically conflicts with two out the three Key Business Banking drivers.
That’s why Banks are slow to look at, respond to and fund your transaction.
The highest growth rate in new business volume went to the Independents, increasing by 59.9% to $12.7 billion. Approximately 70% of Captive Brokers as well as Independents Brokers reported growth, compared to 61.1% of Banks. Large-ticket represents only 17% of the total market, but had the strongest growth in 2015, expanding to $23.8 billion. This expansion in the large ticket market segment suggests a consolidation toward bigger entities with lower risk. The small-ticket segment represents 33% of new business volume, reaching $41.0 billion in 2015. (U.S. Equipment Market Study 2016-2017)
Equipment Leases is set-up to respond to any business needing Equipment Financing as well as any reputable broker needing to get their clients project funded. So even though equipment leasing brokers are ignored by big banks now the reality that operators like Equipment Leases Inc can say “YES” when most say absolutely not. $50,000 to upwards of $5,000,000 with fast approvals, flexible terms, great rates and willing to look at challenged credit situations, B-, C or D credit deals looked and if there is a way to get them done our credit managers can do it.
Case Study #1
Broker A has been in the Transportation Industry for over 15 years and every year since then, they have been faced with new and challenging obstacles. In 2017, Broker A found itself among just a few financial groups funding customized trucks and trailers within the Oil and Gas Industry due to the declining price of oil in 2014 and 2015. A Customer looking for a partner to help finance not only new trucks and trailers ($525,000.00) but refinance some of his older units ($480,000.00). The issue was that the majority of this Customers revenue was in oil and gas, hauling mobile rigs to various Oil Exploration sites.
The primary bank was holding $2 million in capital for this customer already and could not lend to a company in a declining industry with that much exposure. The equipment that needed refinanced (monetized) was over 7 years old. Most banks will not finance trucks that are over 7 years old because the life of a truck after a new 36 months financing would be over the life that particular asset. The older trailers that needed refinancing were customized and deemed to “Specialized” to be finance or sold on the secondary market.
This customer was faced with multiple issues and had nowhere to turn financially. Broker A and their underwriters were able to provide one schedule with a payment strategy to match their cash flow on both new and old equipment. The customer provided three years of financials, two of the last three years did not cash flow and the most recent interim year being 2017 had shown a debt service and cash flow with positive tangible net worth. The company was showing signs that they were turning the corner but just needed a little help to get past these trying times in the Oil and Gas Industry.
Case Study #2
Broker B has been the beneficiary on several occasions where customers came to them when their Primary Bank had abandoned them not only once but twice. A customer operating with 27 International (Max Force Engines) trucks originally financed by the clients Primary Bank. International’s Max Force engines all had a common theme of breaking down with less than 150,000 miles leaving truckers on the side of the road. In 2014 International replaced this engine with a Cummins as to regain market share after a disastrous showing with Max Force. Banks all over the United States had a bad taste in their mouth and stop financing this truck even with the new Cummins Engine.