Commercial Banking - Equipment Finance Sales

Mark Stanley, Executive Director of Commercial Equipment Finance Originations, Commerce Bank

Mark Stanley, Executive Director of Commercial Equipment Finance Originations, Commerce Bank

The Equipment Finance industry is made up of bank-owned equipment finance companies (Bank of America Global Leasing, Key Equipment Finance, and Wells Fargo Equipment Finance are examples), captive equipment finance companies (IBM Global Finance, CAT Financial, and Ford Credit are examples), and various independent equipment finance & leasing companies. My background is in sales, working for bank-owned equipment finance companies and serving commercial, institutional, and local government borrowers, and providing equipment finance structures that help clients acquire equipment and other capital expenditures.

Equipment Finance Products & Structures

The products we offer are Equipment Loans, Capital Leases, Fair Market Value Leases, TRAC and Split TRAC Leases, and First Amendment Leases. Equipment loans and Capital Leases are similar in the sense that the Lender/Lessor puts up the financing as debt and takes a lien in the equipment, and the Borrower/Lessee owns the equipment and receives tax benefits on interest cost and depreciation. FMV, TRAC, Split-TRAC and First Amendment leases are considered tax leases where the Lessor takes ownership of the asset and leases the asset to the Lessee who makes the monthly payments. In this case, the Lessor receives the tax benefits of depreciation due to ownership. Tax leases also include residual values that are determined by the Lessor and end-of-term options that allow the Lessee to renew the lease, purchase the equipment, or return the equipment.

“Equipment Finance is a transactional business that can be used to build and develop broader banking relationships”

The Sales Process

Equipment Finance is a transactional business that can be used to build and develop broader banking relationships. The process begins with finding opportunities which are accomplished in any of the following ways:

1. Sourcing deal opportunities through the equipment finance company or bank’s existing client base.

2. Sourcing opportunities through banker referrals.

3.Sourcing opportunities through industry intermediaries such as brokers/placement agents and financial advisors.

4. Sourcing opportunities through prospecting and sales outreach efforts.

The Bank Approval Process

Once I find a live opportunity, I begin working with my asset management team; they evaluate the equipment in terms of estimated residual value, useful life, and current equipment value. Typical assets that we finance are trucks, tractors, trailers, vans, heavy equipment, construction equipment, agriculture equipment, telecommunications equipment, marine vessels, manufacturing equipment, computer hardware & software, school buses, city transit buses, and public maintenance & public safety vehicles.

The next step is to obtain credit approval. Our credit team evaluates the credit worthiness of the Borrower/Lessee by reviewing their liquidity, profitability, cash flow, demographics, industry, repayment terms and tenors, additional guarantors, debt service coverage ratios, etc.

Finally, the last step in seeking deal approval is to gather business consent from the executive management team. The deal is presented to the executive committee and all major aspects of the deal (equipment type, residual value, useful life of the asset, deal structure, credit strength of the client, repayment terms, pricing & profitability, prepayment terms, rate locks, credit exposure constraints, etc.) are evaluated during these meetings.

Proposal Stage

Once the deal is pre-approved, I will have a proposal put together and present it to the client. The proposal will incorporate the terms and conditions of my approval. If I get the deal, I begin the closing process which typically takes about 3-4 weeks.

Closing Process

During the closing process, the deal goes back to Credit for final approval; Operations distributes closing documents for signatures; and attorneys are engaged to review/negotiate the documents. My job is to manage the deal team and the client to ensure that the closing goes smoothly.

Post Closing

Once the deal is closed, we stay in communication with the client regarding billings, payments, etc. This also helps me to stay in front of my clients to build those relationships and learn about upcoming needs.

Sales Challenges

Meeting a firm’s approval criteria can be difficult when you are going to market and, since equipment finance is a credit product, I am always at the mercy of what my credit team will approve. It can be difficult to find opportunities that meet their criteria, and the criteria can change due to micro/macro factors. Also, the bank’s executive team may adjust pricing and business parameters and this can create challenges.

One industry challenge that comes to mind is the level of competition. This has always been a competitive industry but, over the past 7 years, bank lending in general became extra saturated and competitive than prior years due to various supply and demand factors; high bank liquidity, low interest rates, and favorable changes in the corporate tax laws. This caused banks to lower their profit margins to rock bottom levels in order to win business and it seemed everything became a pricing war. In 2023, due to higher interest rates, lower liquidity, and the regional banking crisis, banks have raised their profitability standards, but competition remains very high.

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