Unlocking Growth Opportunities: How Bank Referral Programs Can Enhance Equipment Financing

In today’s competitive business landscape, equipment leasing companies face the challenge of staying ahead of the competition and expanding their originations. One effective strategy to achieve this is through the formation of bank referral programs. A bank referral program is a mutually beneficial agreement between a commercial bank and an equipment financing company, aiming to refer and fund ongoing equipment transactions for the benefit of all parties involved. While it may initially seem counterintuitive for banks and equipment financing companies to collaborate, establishing a referral partnership can lead to significant benefits for the customer, the banker, and the equipment leasing company alike.

The Perils of Avoiding Bank/Leasing Company Relationships

Before delving into the benefits of bank referral programs, it’s crucial to understand the potential problems that arise when such partnerships are not formed. When business owners seek equipment financing, they often turn to their banks first, expecting a seamless process due to their existing banking history. However, banks may have limited experience with equipment financing, leading to declined credit applications and strained customer relationships. On the other hand, if equipment leasing companies dismiss banker relationships as competition, they miss out on accessing quality clients. Consequently, without collaboration, potential deals may fall through, resulting in lost business opportunities.

The Benefits for Customers

Customers stand to gain numerous advantages from bank referral programs, making it a valuable proposition for their equipment financing needs. When a bank has a strong relationship with an equipment financing company, customers have a better chance of securing financing even if they face challenges such as challenged credit or limited options at their bank. Additionally, referral partnerships provide access to flexible financing options and “application-only” financing, which may require limited or no financial reporting. By choosing an equipment leasing company, customers can preserve their bank lines of credit and retain their trusted banker relationships.

The Advantages for Bankers

Contrary to initial assumptions, bankers also reap significant benefits from collaborating with equipment leasing companies through referral programs. Firstly, referring customers to leasing companies allows bankers to nurture customer relationships as full-service financial solutions providers. This helps in cases where the bank may be uncomfortable funding certain types of equipment or adhering to stricter lending criteria. Additionally, leasing companies can assist bankers in building relationships with customers who initially seek smaller credit requests, acting as a gateway to a full banking relationship. Furthermore, by referring clients to trusted leasing partners, bankers can prevent competitors from luring their clients away and maintain their position as the clients’ choice for future banking needs.

The Advantages for Equipment Financing Companies

For equipment leasing companies, developing strong bank referral relationships offers numerous advantages beyond growing originations. Partnering with banks enhances the company’s credibility and fosters lasting customer relationships. Contrary to common belief, bank-referred clients often have stronger credit profiles and lower default rates compared to vendor-referred business. Moreover, bank referrals streamline the client acquisition process as potential customers are already interested in equipment financing, and the banker has already conducted preliminary discussions and shared relevant financial information with the lessor.

Managing the Risks

While the benefits of bank referral programs outweigh the risks, it’s essential to acknowledge and manage potential challenges. Maintaining relevance and preventing bankers from feeling left behind after referring clients requires constant communication and transparent business practices. Additionally, both bankers and lessors should understand each other’s preferred types of business to avoid the client being turned down multiple times. Addressing the perceived rivalry between banks and equipment leasing companies is crucial to kickstarting successful bank referral partnerships.

Forming bank referral programs presents a golden opportunity for equipment leasing companies to enhance their originations and expand their customer base. By fostering collaboration and setting aside perceived competition, both banks and leasing companies can benefit from a bank referral partnership. Customers gain access to flexible financing options and maintain their trusted banker relationships. Bankers can nurture customer relationships and prevent competitors from penetrating their client base. Equipment financing companies access potential clients more easily and establish credibility with the support of reputable banks. Embracing bank referral programs is a proactive step towards success in the competitive equipment financing industry.

Equipment Leasing and Finance: 2016 Ends with Cautious Optimism for 2017

In December 2016, the Equipment Leasing and Finance Association (ELFA) reported a 3% year-over-year decrease in new business volume (NBV), totaling $12.1 billion. Despite this decline, the month-to-month volume saw an impressive 89% spike, reaching $6.4 billion. The cumulative new business volume for the entire year was down 2% from 2015. Ralph Petta, ELFA President, expressed cautious optimism, attributing it to the anticipated business-friendly policies under the new Trump Administration.

Additionally, the Equipment Leasing & Finance Foundation’s monthly confidence index for January 2017 soared to 73.4, the highest level since its launch in 2009, signaling positive sentiments and a potential upswing in the industry. This blog post delves deeper into the report’s findings and explores the factors that might impact the equipment leasing and finance sector in 2017.

Equipment Leasing and Finance Trends in 2016
Throughout 2016, the equipment leasing and finance industry experienced both highs and lows. December saw a 3% decline in new business volume compared to the previous year, resulting in concerns about the industry’s stability. However, there was a significant surge in volume from November to December, indicating a positive end-of-year trend.

ELFA President Ralph Petta acknowledged the slight downturn in full-year originations but remained optimistic about the future. Many business owners shared this cautious optimism, hoping for favorable policies and economic growth under the Trump Administration.

The credit market metrics remained within acceptable ranges, boosting the industry’s confidence despite the fluctuating figures. Credit approvals, for instance, showed an improvement, reaching 77.4% in December, compared to 76% in November. This uptick in approvals suggests an increased willingness among financial institutions to fund equipment leasing and financing ventures.

A Closer Look at Delinquencies and Charge-offs
Delinquency rates and charge-offs are crucial indicators of the industry’s health, and in December 2016, the ELFA reported mixed results. Receivables over 30 days increased to 1.40%, up from 1.30% in the previous month and 1.10% in the same period in 2015. This uptick could be attributed to various factors, including changing economic conditions and specific industry challenges.

However, charge-offs remained relatively stable at 0.42%, only slightly up from the previous month’s 0.40%. This consistent figure suggests that despite some uncertainties, equipment leasing and finance companies managed their credit risks effectively.

Confidence and Investments in the Industry
The Equipment Leasing & Finance Foundation’s monthly confidence index for January 2017 rose to 73.4, marking the highest level since its inception in 2009. This boost in confidence indicated that industry players were increasingly positive about the future and the potential for growth.

Mike Jones, Managing Director of CIT Equipment Finance, shared insights from his company’s perspective. He emphasized that small and medium-sized organizations were exhibiting greater commitment to invest in capital equipment, a promising sign for economic expansion. Businesses were eager to offer better products and services to their customers, and they recognized the importance of investing in equipment to support their growth.

Prospects for the Equipment Leasing and Finance Industry in 2017
Looking ahead, the equipment leasing and finance industry in 2017 could be impacted by various factors. The key driver of optimism is the expectation of business-friendly policies under the new Trump Administration. Business owners are hopeful that these policies will stimulate capital investment and foster economic growth, which could positively affect equipment leasing and financing activities.

Additionally, advancements in technology may play a significant role in shaping the industry’s landscape. New technologies and innovations are constantly emerging, revolutionizing how businesses operate and necessitating the acquisition of updated equipment. Equipment leasing and finance companies that stay ahead of these technological developments are likely to gain a competitive edge.

Moreover, as the economy recovers from any setbacks, businesses might become more willing to invest in expansion plans, leading to an increased demand for leasing and financing solutions. Equipment leasing can offer a flexible and cost-effective approach to acquiring the necessary tools for growth, and savvy entrepreneurs will see this as an attractive option.

While the equipment leasing and finance industry experienced a slight dip in 2016, it ended on a cautiously optimistic note, with a strong month-to-month increase. As the Trump Administration assumed power, business owners hoped for favorable policies that would support economic growth and investment.

The industry’s ability to manage credit risks effectively, coupled with growing confidence and commitment to investment, points to a potential uptick in equipment leasing and financing activities in 2017. Furthermore, advancements in technology and the overall economic outlook will play a crucial role in shaping the industry’s trajectory.

As businesses adapt to the changing landscape, equipment leasing and financing companies must remain agile and innovative to cater to the evolving needs of their clients. By embracing these changes and focusing on customer-centric solutions, the industry is positioned for a promising year ahead.