Sales people are typically “coin operated,” which is to say that they are motivated by money. With that said, it is sometimes surprising to me how many sales people don’t understand the importance of submitting a good credit submission package. The reason for that might be for many of the small transactions, credit scoring drives the credit decision. The only thing the sales person needs to supply to the funding source is a completed and signed credit application and a vendor quote/invoice.
Then again, there are the larger transactions that require additional information, such as financial statements and tax returns. In larger transactions, with credit worthy accounts, nothing much more than those basic items is required. The financials (and/or tax returns) tell the “Story” for the credit committee. The Scoring solution requires minimum input from the sales person, and for the larger transactions the financials and tax returns speak for themselves. However, when the transaction is a “Story Credit,” things seem to become challenging for the sales person. This is where many sales people fail to properly “package” the opportunity to obtain the desired results from the funding sources.
What qualifies as a “Story Credit?”
If the credit submission fails either of the above credit reviews, then likely it now qualifies as a “Story Credit” submission. Here the sales person needs to identify why did it not pass the credit review at the bank. For small and mid-sized businesses (SMBs), the principals of the business will most likely be required to provide their personal guarantee on the financing. When their credit is pulled, the most frequent reason a bank declines the application is a legacy issue. Those legacy issues include foreclosures, bankruptcies, tax liens, short sales, student loan delinquencies, etc. An issue that occurred just six -months ago can negatively affected the borrowers/lessee’s FICO score. The borrowers/lessee’s FICO score might now be 710, but they had a short sale in 2014. To get these credit submissions approved, someone has to find out about the borrowers/lessee’s “Story.”
How does someone tell the “Story?”
If you want to get this opportunity approved, this is where the work begins. You, the sales person with the opportunity fulfills the roll of “Packager.” You need to ask questions of the borrowers/lessee and share that information with your funding source. What happened, how did it get resolved? If it did not get resolved, where does it stand now? Why did they file bankruptcy? If they did not file bankruptcy, but were severely delinquent with a number of creditors, what did they do and why? Are they now caught up or nearly caught up?
So, what is the funding source looking for? Typically, character of the principal, today’s cash flow and to assess the value of the collateral.
The character of the principal is a good starting point. When they faced adversity, how did they handle it? Did they file bankruptcy because of the divorce and walked away from all their creditors? Did they file bankruptcy and entered into payment plans with their creditors, paying everyone eventually all the money they owed? Assuming everything else is okay, the difference in the action one person took versus the other might mean one get approved and the other declined.
Sometimes, the opportunity is based on being awarded a contract or contracts. As a packager, the lease broker, it is important that a copy of these contracts (signed preferred) be included in the credit submission. Then there is the possible mismatch. The contract is for two years and the lessee wants a five-year financing term. Is there any explanation on how that is going to work out?
We had applicants come into our office several years ago who wanted to get a loan. They were local and since they had a credit “issue” on their credit report, it was their intention to make a good impression. We learned in that meeting that they entered into a loan on equipment with a bank several years earlier. Subsequent to that loan, as so many others did in the down turn, the vendor went out of business. We were told that since the vendor went out of business, they elected to stop paying the bank. Since the vendor would no longer service the equipment, they did not feel they needed to continue to pay the loan. The character of this applicant was clear, this was a business we did not want for our portfolio. We bid him good luck finding a lender for his financing needs. We have seen the lessee who has current or former tax liens. When you know they exist, or existed, you want to obtain the payment plans or document the closure if they have been paid off.
We entertain start-ups and they are never easy. This is where the Packager should be asking a lot of questions and submitting a “Transaction Summary” with all the information they have learned. We require the lessee complete a “Start-Up Questionnaire.” One question is “Do you have a business plan?”, if so include it. I am always amazed when the question is answered with a “Yes,” but the business plan is not included with the credit submission. Then there are those that submit a business plan, and it only contains the details of their idea for the business. No financial projections, no costs identified and no revenues, etc. I guess those folks are hoping for the best and they love the idea no matter if they can pay the bills or not. It is not uncommon for the principal to state on the Questionnaire that they have invested X dollars into the business and not include the details on where it came from nor how it was used. Those are basic details us, as lenders, want to know about and you, as the Packager, will want to include in your submission.
Global Financial & Leasing Services (GFLS) was created in 2008 for the purpose of serving these small and mid-sized businesses (SMBs). GFLS has the capability to fund a wide range of businesses. In addition to its own bank lines, GFLS has established its own equipment lease fund. Now, as a funding source, we are able to peel back the layers of a credit request to uncover value and create a structure that will work to assist SMBs secure equipment financing with or without credit blemishes. We know that not every less-than-perfect credit story may fit into the credit boxes used by banks and other financial institutions, but GFLS believes a company’s character is more than its credit rating. In closing, a good Packager is more successful with their submissions and makes more money.