A 525% increase in interest rates over 17 months tends to have ripple effects. One of those is the long exposure many banks have to fixed-income and commercial real estate. While 2023 revealed, those most exposed to poorly hedged bond positions, commercial real estate lurks mysteriously on bank balance sheets in 2024 and for the road ahead. The result is credit tightening, and it didn’t take long to impact commercial equipment finance.
When liquidity is under pressure, banks tighten lending conditions in favor of deposit gathering. As an example, Key Bank, a longtime leader in the vendor finance landscape, announced its refocus on bank clientele and away from vendor segments. The Fed’s own data on credit tightening to small firms further illustrate this.
Vendors are feeling the pullback. Recent research shows 86% of vendors reporting tighter credit conditions as banks pull back.
“In over 25 years, I’ve never been more open to new finance partners than I am right now.”
VP, General Sales Manager
Regional Construction Equipment Dealer
Brokers are well-positioned to fill the funding void. With more flexibility and a commitment to small-ticket funding being increasingly vacated, focusing on a few key fundamentals could help brokers earn vendor business while many banks pull back.
- Emphasize the wider credit appetite. By delivering multiple credit policies through a single customer experience, brokers can deliver broader path to success.
- Personal service. Brokers have the unique ability to roll up their sleeves and work to find solutions in an environment where traditional lenders are limited in their ability to help.
- Going beyond the equipment quote. With many brokers offering working capital solutions and finance capabilities that extend beyond the dealer equipment quote, they can be of more value to the dealer’s customer.
- Don’t run from rate debates. Payments have never been more important and a payment that includes a higher rate is better than the lower rate payment increasingly fewer of their customer qualify for.
- Market aggressively and without assumptions. You are not a second-class citizen. The perception of brokers as somehow “lesser” is loosening rapidly as all those “highly credible” sources are pulling back. It’s a very important time for brokers to be aggressive in their marketing and not assume certain vendors are off limits.
In times of concern, there is always opportunity. With a little focus on the fundamentals, brokers might be able to take their unfair share of vendor business once deemed off-limits.
