THE OLD-FASHIONED WAY: How to Start an “App Only” Finance Brokerage in Four Steps
BY BOB BELL, CLFP
Brokerage, like many financial and professional services, has changed over the years, with the rise of digital innovations, ease-of-use communications and new products on offer through the leasing industry. But for those just starting out, sometimes the old-fashioned way of growing a business is still best, as Bob Bell explains.
I started as a leasing broker in 1990, and I have made every mistake known to man since then. I once spent $5,000 on an ad in a national magazine (insisted on the right-hand page because I heard it gets read more often). I got one phone call! I went into, out of and back into business with my son. Over the years I hired numerous sales reps. None worked out, but they sure took a lot of time away from my core business. On more than one occasion I had the deal sold, but rather than shutting up, I kept running my mouth and talked myself right out of it. I could go on and on, but it’s too embarrassing.
They say there are three types of people in this world: the fools who keep making the same mistakes, the regular folks who learn from their own mistakes, and the really smart ones who learn from other people’s mistakes. I hope some of what I am writing here will put you in the last group.
Go have a conversation with yourself in front of a mirror. Ask yourself if you are willing to do the things that will make you successful in this business. What are some of those things? To begin with, make phone calls. For the first few months, you must be on the phone every day. Successful sales people make phone calls. Lots of them. If the mirror says you won’t make the phone calls, find another line of work. Getting started in this business is a numbers game. In today’s world, getting through the “phone maze” can be difficult, and you will have to be creative at times. Knowing your prospect’s name will be a huge help.
Don’t be afraid of the phone. In all the years I’ve been in sales, no one has ever yelled at me and very few have hung up on me. Picture a Southern boy from Chattanooga selling cheap ladies’ clothes to national and regional chains in New York City? Now, that’s tough selling!
If you think marketing can substitute for phone calls, you’re wrong. To be brutally honest, “marketing” is just an excuse for not making calls.
Go visit a lender, preferably one that does not credit score. There are a number of lenders who would welcome a visit from you, even if you’re not on with them. It shows your willingness to be a professional and learn the business from all sides. It might even help you get on with them at a later date.
There are two reasons to invest in this visit. First, you will get to spend several hours with a credit analyst looking at deals just like the ones you will be sending them. You will learn what they like, what they dislike, what irritates them and how to put together a better credit package. If you think you can read a credit report, wait until you see a credit expert rip one apart.
The average approval percentage for app-only lenders is around 50%, yet some brokers consistently exceed the 85% ratio. Do you think they might have spent some time visiting the lenders? A few days in credit is like a post grad class in the finance business and will pay huge dividends. You won’t even have a student loan to pay off!
Every day, credit analysts look at dozens of deals, in a variety of industries, from a lot of different brokers for a wide range of dollars. You can’t expect, and they can’t possibly know, everything about every deal. As someone once told me, “Credit people are down on deals that they’re not up on.” It’s our job as brokers to bring them up on our deal. A complete package with a good write-up will go a long way towards an approval. Don’t expect the credit analyst to do your work. You need to include all the backup documentation and explain the bad stuff. They will find out anyway, so it should come from you. What you don’t want is an e-mail from credit asking you to explain something not covered in your package.
The second reason for the trip is you will have the opportunity to see what type of equipment and what price range falls into lenders’ sweet spots. That’s the business you want to go after. You’ll learn not to put square pegs in round holes.
And remember, if you’re going to make it in this industry, always follow the golden rule of finance: the one with the gold makes the rules. The credit and funding people are the ones who approve your deals and sign your checks, so be nice, don’t argue and really get to know them.
Now that you know what the lender likes — and most of them like the same things and restrict the same things — you can find a niche or two. You should target vendors in these industries, and make your calls to these vendors. Vendors are selling the stuff you want to finance every day. That’s where you want your focus to be.
When you’re making calls, you’re probably thinking, “How can I get their business?” You should be thinking more about what you can do for them and their problems, because if you don’t, you won’t get the business. Remember, a sale is not made until money changes hands, and your job is to convince the vendor you can help them close more sales at higher margins. Every car ad on television offers financing options because it helps sell cars, and it can help sell widgets as well.
Now, during your many phone calls you will speak to the vendor who asks you to pay them points. The gambler provides the best advice on this situation: “Know when to walk away.” Be polite. Tell them you would love to earn their business, but you respectfully decline to pay points. You may not get the vendor, but you will get respect because you are dealing from strength, and you will avoid the nightmare of paying points. Even if you got the vendor by paying points, you could lose them as soon as someone offered more. You are looking for loyal vendors.
The bad news is every vendor you call will already have their “finance guy,” and, I’ll bet you their current finance guy was not their first finance guy. This finance guy did something to take the business away from the other guy, and you can do the same. Not on the first call or the second or third, but if you keep at it, you will get your share of the business. To do so, take a minute after each call and self-evaluate . What could you have said differently or better? Should your opening question have been different? Selling is more about asking questions than pontificating. By doing this you can fine tune your script. Success in this business, after all, is 90% perspiration and 10% inspiration.
I worked with a guy once who said, “Price, quality or service, pick two.” Brokers can’t compete with Caterpillar, Deere, Wells Fargo, DLL, or Bank of America on price. So, if we can’t be the cheapest, we need to focus on what we can do that the big guys can’t or won’t. Many of the big players are captives focused on selling the newest stuff, which can leave the small vendors out in the cold. Too much trouble and not enough volume. Those same vendors, however, sell used stuff, too. So, a cold call might sound like, “I know you don’t need me for your new widgets, but we are great on used widgets.” Maintain your focus.
The independent broker is what the corner store is to the supermarket, what the boutique men’s store is to Men’s Warehouse, or the local hardware store to Home Depot. We serve a niche.
It can be tough making phone calls every day, so here’s an idea. Find a light industrial park near you, the kind with a variety of businesses. Make Fridays your day to get out there and meet people, as the majority of traveling business people make their home office day on Fridays. Arm yourself with only a pocket full of business cards and a one-minute sand timer (no briefcase or brochures) and call on every unlocked door. Ask to speak to the person in charge. If you get to meet them, ask for just one minute of their time. If they say “okay,” take out the timer, turn it over and say, “What do you do here?” At the end of one minute, pick up the timer and say, “I would love to hear more about what you do, but I am a man/woman of my word. Should I leave?” I’ll bet you a dollar to a donut, eight out of 10 will let you stay, and that may allow you to stumble onto new niche.
You will never know the answer to every problem, situation or question. Henry Ford once said, “I have a row of electric buttons in my office. All I have to do is press one of them to call the person who can answer any question.” Your fellow brokers are your row of buttons. Reach out to them. Get to know them. Share information with them. Then, when someone asks you a question you can’t answer, you can press one of those buttons.
I can tell you one of the reasons I have survived the ups and downs of the industry is due to the many friends and contacts I’ve made. I got to know a broker who made his living leasing cows. I met another who financed irrigation systems for golf courses and another who financed foam insulation for chicken coops. Financial statements were all Greek to me, but I met some really smart folks who would go through them with me. The more I got involved with associations like the AACFB, the more people I met and the broader my network became. The best way to do this is to go to industry meetings and make it a priority to make several contacts. Follow up when you get home, and stay in touch. Nourish the relationship, which means giving as well as taking.
How important is networking? It was so important that many years ago a group of about seven of us formed our own little side group. We were known as the OLG group, Old Leasing Guys. We would come in a day before the regular association meeting and share ideas and discuss mutual problems. I am still doing business with a lender I had never heard of until one of those meetings. Imagine the value of having six other people you trust completely at your fingertips for information.
I was taught to always end on a positive note. So, here goes. Assume after all those phone calls you are able to get just five vendors to send you one transaction a month. If the average ticket price is $25,000 and you earn eight points per deal, you will earn $10,000 a month. Not a bad start for a rookie independent finance broker. •
A version of this article appeared previously in AACFB’s Commercial Break on June 13, 2019.