Sales Make it Happen
Moving Up-Selling into the Middle Market
by Robert Teichman, CLP
Small-ticket and middle market are two different businesses. The Leasing salesperson who understands the differences will be successful in both.
The small-ticket business, generally defined as leases for equipment costing less than $75,000, focuses primarily on the credit of the guarantor of the lessee company. Generally, the lessee completes a credit application calling for a minimum amount of information. The application is forwarded to a funder, which reviews the credit, concentrating on the guarantor's credit score and the lessee's time in business. The funder may also consider bank and trade information. Approval, if granted, occurs shortly after the funder receives the application, and the approval and rate is transmitted to the originator.
Generally, the originator has not received a signed proposal letter from the lessee prior to sending the application to the funder. As a result, many approvals do not convert to bookings because the applicant signs up with another lessor or decides on another type of financing.
Therefore, the characteristics of the small-ticket business include an application with little information, heavy reliance on credit scores, a fast turnaround of the credit process, and credit review before getting the lessee's commitment.
On the other hand, middle market leases, generally defined as leases between $75,000 and $5,000,000, require a more structured approach. The funder requires a full financial package, which includes several years of financial statements, lessee and guarantor tax returns, complete equipment details and a narrative which should include a thorough financial analysis as well as a discussion of the company and its history.
Because of the depth of analysis which goes into a middle-market transaction, most funders demand that the lessee agree to the terms of the lease before starting the credit process. It is because of this requirement that more middle-market lease approvals convert to bookings than do small-ticket (application-only) transactions.
All leasing salespeople should understand how to place a middle-market transaction. Even those who specialize in application-only deals will improve their volume by learning packaging and financial analysis techniques.
Often, the lessee who started with a small transaction grows beyond the small-ticket limit. In order to maintain the relationship, the originator will have to help the lessee obtain the financing, or risk losing the account.
One technique I have often used is the Master Lease. Instead of simply responding to the lessee's stated need for a small transaction, I would ask what other equipment the lessee planned to acquire that year. Not surprisingly, there almost always were other items on the capital expense budget. I would then offer a written proposal based on the total equipment needed, since I knew by then that I was working with a larger transaction. All the equipment the lessee planned to get over a six to twelve month period could be easily accommodated under a single Master Lease, instead of many individual leases.
If the lessee did not need additional equipment, the lease could still have been handled as an application-only transaction.
Not all lessees would qualify for a larger Master Lease, but the originator who pre-qualifies the lessee and is confident of obtaining an approval will win not only the original small lease, but all follow-on leases as well. Originators who understand how to read and analyze financial statements and how to properly prepare a full financial package will significantly increase their bookings.
Robert Teichman, CLP
Teichman Financial Training