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.