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July 9, 2010updated 12 Apr 2017 4:21pm

Should lessors and brokers re-tie the knot?

It has been two years since a number of bank-owned lessors cut their partnership ties with brokers. The first, and most important, reason is that brokers are excellent at sourcing new deals from SMEs

By Brendan Malkin

Wedding toppersIt has been two years since a number of bank-owned lessors cut their partnership ties with brokers.

Now, however, appears to be as good a time as any to re-forge these relationships.

The first, and most important, reason is that brokers are excellent at sourcing new deals from SMEs. And, as everyone knows, leasing companies are mad keen right now to increase the amount of business they get from smaller customers.

This is partly driven by politics. The parents of many bank-owned lessors have been part nationalised, and as a result they have a mandate to lend to SMEs.

The second reason is bank-owned lessors which source SME deals from brokers tend to be profit-making – take for example lenders such as Close Asset Finance, Aldermore or ING Lease.

The flipside to all this is that bank-owned lessors, being risk averse, are generally less willing to underwrite the sorts of smaller deals most brokers are able to source.

Furthermore, the costs involved in processing such smaller deals are not sufficiently high enough to justify the benefits.

Notwithstanding this, signs are emerging that bank-owned lessors might be experiencing a change of heart.

This was suggested last month when several lessors announced that, once the recession lifts, they expect to be transacting lots of deals around the £20,000 (€28,000) mark, as opposed to the circa £100,000 average sized deals they are currently signing.

In preparation for this, a number of bank-owned lessors have introduced software systems that will enable them to process smaller deals.

But will they all be turning to brokers to source this business? Probably not is the answer. The traditionalists at bank headquarters are hardly likely to warm to a group of intermediaries who have been typecast by some as the source of bad business and ill fortune.

Also, with the right systems in place, many bank-owned lessors are gambling that they will be able to source low value deals both efficiently and cost effectively.

But it is not just the size of leasing companies’ deals that are changing.

The asset finance industry is finding even more reasons for getting into bed with the rest of the business finance world – take for example UK invoice finance provider Ultimate Finance Group, which announced last month that it has set up a new asset finance division, Ultimate Asset Finance.

Brendan MalkinLeasing companies are also showing their mettle by not being afraid to focus a lot of their energies on the renewables industry, even though the sector’s future remains uncertain and residuals values are largely undeterminable (see DLL takes on energy sector , UniCredit dives into renewables and Leasing could benefit from biogas revolution).

 

Brendan Malkin

brendan.malkin@vrlfinancialnews.com

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