Questions? Feedback? powered by Olark live chat software Coming to “terms” – American Leasing & Financial
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Coming to “terms”

 

We received a transaction from a broker the other day. At first, we dismissed it immediately because the owners had a recent bankruptcy and their house was about to go into foreclosure. The request was for a used SUV costing $35,000. The customer was in a rural area and wanted to use the SUV as an upscale transport vehicle to expand a taxi/limo service they started three years ago.

Initially, it was an easy decision to pass on the transaction. It didn’t fit our standard credit criteria, nor would it fit any of our lending partners. What made us second guess our instincts, however, was the fact that the customer had a good website (signifying a stable and successful operation) and showed evidence of enough cash-flow to service the debt. Moreover, their business model seemed appropriate for the area: one that caters to both winter and summer recreation. After taking a closer look at the transaction, we decided it would be worth further investigation, and received permission from the Broker to interview their client.

We had a frank and honest conversation with the client in which we discussed, among other things, their plans for using and making money with this new acquisition. The customer had done his homework, but had unrealistic expectations when it came to financing. Although the company had adequate cash-flow, with the assets they had in place, this particular item needed to come with an $800.00 a month payment. The problem is a matter of term. Not many lenders want to become the new “largest creditor” for a borrower just out of bankruptcy.  Recognizing the wisdom in that principle, we had in our minds the possibility of a 36 month term with additional collateral in the form of some older titled vehicles that were offered as security.

The customer knew how much they could afford, and we agreed. In a good month the vehicle would generate about $3,000 a month in gross revenue. After factoring in the cost of insurance, taxes, fuel, maintenance, and drivers, the monthly payment need to be no higher than $800.00 if they were to make a profit. We agreed to fund the transaction for up to $25,000.00, albeit at a longer term than we originally envisioned, so as to ensure a payment well within the customer’s predetermined budget.

Where many finance companies specialize in pushing a high monthly payment on customers, our strategy has always been to ensure the payment provides the customer with an opportunity to be profitable while using the equipment.  The benefit to this strategy, for us, has been a stable and well-performing portfolio: not only do our customers not sign up for payments beyond their means, but we also get the comfort of knowing the payment is reasonable within the confines of their cash flow.

In short, selling a customer a high payment does us no good, it merely increases the risk of default and prevents the customer from making money when the equipment is at its most productive.  By paying close attention to how the term can make or break the deal, we’ve been able to mitigate the risks to ourselves and to our customers.  For us, that’s just one more piece of the American Leasing Advantage.