Obtaining a Bank Line Part 2 – Data, Data, Data
Leading and Decisioning More Effectively
For many independent equipment leasing companies, qualifying for a bank line of credit to fund balance sheet portfolio is a great way to build company value and long-term income at a relatively low cost of capital. However, going through the process of securing a bank facility for the first time can be an overwhelming process. In the first installment of this article series we looked at what a bank facility might look like structurally. Now let’s talk about the level of data a bank will likely require from a prospective borrower to make their credit decision.
Generally speaking, banks are going to determine the advance rate on the facility and the level of autonomy they allow their equipment leasing borrowers to have in the credit decisioning process for the leases based on the past performance of the company’s historic portfolio. So, the more data, and the more granular the data one can provide around this topic the better. This is terribly important, so I’ll stress it again…it would be very rare for a bank to complain about getting too much data from a client, so the more you can capture and provide when needed, the better.
I’m often surprised to find that a good number of leasing companies have very little information on the leases they have funded in the past and/or how those leases performed. If nothing else, this is data that one should desire to track for their own benefit, if not for the long-term plan of obtaining a bank facility and/or selling the business.
At a bare minimum, leasing companies holding balance sheet portfolio should be able to provide aggregate data on how many leases they have funded, and of those leases, how many remain open, how many terminated according to the terms of the lease, how many paid off early, and how many ended in default (all from both a number of transactions and dollar amount perspective). Ideally, they should be able to provide much more granular data on each individual lease funded, including the lessee’s name, lessee’s industry, lessee’s state, equipment type, equipment vendor, original equipment cost, any deposit collected from the lessee, any additional collateral taken, the lease start date, the lease maturity/termination date, the original lease term, and the lease payment amount. For closed leases, they should include the reason for the lease closing. It is also extremely beneficial to know on those leases that ended in default, not only the amount of book write-off taken, but also the actual cash loss incurred by the company on each.
In addition to data on a company’s historic portfolio, banks are going to expect any leasing company borrower to be able to provide an open loan/lease tape report at least on a monthly basis, if not on demand. This type of a report, should capture all open leases and provide all of the information listed above, plus the aggregate minimum lease payment receivable, the net book value, and how many days past due the lease is at the time of the report.
While capturing this data may be time consuming and potentially cumbersome (especially if one needs to go back and rebuild it on old leases), it is highly beneficial in building a good rapport with banks and other lenders. Additionally, this is data that is good for the management/ownership team of the company to have and know to lead the company in a more effective and efficient manner.
Justin Vogel has been in commercial banking for 20+ years and financing equipment leasing companies since 2004. Vogel is currently a senior vice president at Bridge Bank, a division of Western Alliance Bank. Vogel is responsible for the development of new borrowing relationships, primarily focused on receivables financing. Vogel launched the lender finance product for Bridge Bank in 2016 and is also a member of NEFA.