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We Independents are a Paranoid Bunch

July 20, 2018, 07:00 AM

I am old enough to remember the days when the utilities entered into the equipment finance business, the roll-up craze, and big banks entering in enmasse. More recently we have seen the FinTech phenomenon. I recall a panel discussion on FinTech at an ELFA convention a few years ago. It was standing room only and there were many unhappy attendees in the room. Some were even outwardly antagonistic. And how about the latest surge of community banks getting into the business (read the three-part series of articles on this topic published on Equipment Finance Advisor in 2014, here).

I have always viewed myself as an independent lessor, even after I subsequently sold my companies to banks (twice). I have also always been paranoid of outsiders encroaching on my turf! That’s healthy right?  But what could I do about it?  Answer: NOTHING! So why fret and fester about it?  JUST BECAUSE? That’s dumb!

Here’s a novel thought:  Why don’t we independents just go on the offense for a change? What prohibits us from getting into the SMB commercial finance space? We haven’t done that really – or have we?  Sure, we have! We went from predominantly doing FMV leasing to doing equipment finance agreements – which are just term loans for equipment. But what about writing non-equipment commercial loans?  We’ve done that as well since many of us are already financing software (the new equipment) by convincing ourselves that we have a secured asset? How difficult can it be to move into commercial term loans, commercial working capital loans and lines of credit, accounts receivable financing, factoring, SBA loans or real estate lending?

Funding of course is the biggest potential limiter/hurdle, right? Solve that problem and we can mine a new revenue stream!  In reality however, finding funding is not the major limiting factor to entering these new lending spaces. The biggie is the old problem of avoiding change. We have been successful at doing the same old thing for decades, so why change?  THIS IS THE BIGGEST OBSTACLE!!! It is worth repeating, THE BIGGEST OBSTACLE IS US! 

Here’s a brief history lesson. In the early days of leasing, the pioneers of our industry, like Ken Pontikes (founder of Comdisco), and many of his acolytes created and weaponized the concept of “non-recourse financing” of the debt stream of an equipment lease transaction. That was crucial to us independents then and now. Without it, lessors would have had to internally fund the entire transaction as opposed to just the present value of the residual value. This non-recourse discounting model most likely sounded crazy at the time, but Ken and the gang believed and persisted! We now use it in discounting pools of all types of leases, not just FMV leases. They accomplished and created an entire industry that seems commonplace today. You must admit that our industry pioneers’ feat was nothing short of remarkable. So here is a long overdue thank you to the pioneers for their hard work, vision and persistence!

The larger our bank’s equipment finance groups are as a percentage of the bank’s total assets and the better the equipment finance groups’ stature within these banks, the more likely they will be able to accommodate our requests to help us service more of our customers’ commercial finance needs. If our bank’s answer is “NO” to such requests, then I suggest we follow Ken Pontikes and other industry pioneers’ lead and GO ASK SOMEONE ELSE. And, keep asking, until you get a “YES”. 

A “YES” by the way is much easier to get today than it was for the pioneers. The products we are talking about now are well known. Moreover, there are many non-bank avenues available for these commercial loan products today – such as family wealth funds, hedge funds, private investors, independent commercial finance companies, and FinTechs. In addition, we have significantly better technology available to us today than the pioneers had in their day. This reduces friction in the lending process from application to funding. Our real value-add as independents, is that we are asset generators. We know how to originate loans; lots of them! Today, there is no need to fret about the accounting and servicing of these varied types of commercial loans either, since we now have multiple options for outsourcing all or parts of the loan servicing. And by the way, here’s a news flash…our back-office systems (the process that takes place after the actual booking of the deal) are NOT a value-add to us or our customers. So, why do it?  Today, third-party servicers can do a much better job of managing our back-office systems because they have invested and continue to invest much more in their platforms than we could ever invest. Boy, am I going to get some hate mail for that statement! But it is the truth.

I’m sure we will think of more objections to entering new lending spaces besides funding and servicing – most of which are more easily solved when compared to funding and servicing. I know change is tough, and we haven’t had to change for the most part. However, make no mistake about it, the winds of change are blowing. Now is the time for us to go on the offense to exploit and disrupt a big, stale, and neglected market – SMB commercial lending.  The vast majority of small businesses, especially minority owned SMBs are underbanked and we can help them!  By the way, this change I am proposing will help us build a better moat around our business models by protecting our SMB customers from competition. 

So, stop fretting and being paranoid about invaders in our market. There are enough other things to worry about on the horizon – like the next Trump Tweet!

As always, I welcome your comments!

Bob Rinaldi
President | Bob Rinaldi, LLC, Consulting & Advisory
Bob Rinaldi is a serial entrepreneur and a self-acclaimed non-traditionalist when it comes to envisioning, building and implementing a business model, developing a growth strategy, or crisis/problem resolution. He brings a sizable history of success in many endeavors. Technology and its inevitable disruption to current business models have been a passion as-well-as cultivating a “conscious” attitude about how his personal and business life positively impact all stakeholders – not only himself.

Bob Rinaldi was Chief Executive Officer of Commercial Industrial Finance (“CI Finance”), a national equipment finance company headquartered in Cincinnati, Ohio and SVP and Director of CBank, a commercial banking community bank in Cincinnati. CIFinance was acquired in 2015 by CBank, a Cincinnati based community bank focused on commercial and industrial lending to SMBs. CI Finance specializes in the development and implementation of sales-aid finance programs for manufacturers, vendors and distributors of capital equipment.

Rinaldi was SVP of CSI Leasing, responsible for its organic and inorganic growth strategies. Previously, Rinaldi was Executive Vice President of National City Commercial Capital Company (NC4), now PNC, and President of NC4 Canada. Rinaldi has held positions including Senior Vice President of Provident Bank and Executive Vice President and Principal at Information Leasing Corp. (ILC), later acquired by Provident Bank. As a founding partner of ILC, Rinaldi helped grow the company to the fifth-largest bank-owned leasing company in the United States with annual originations of over $3 billion and $8 billion in assets.

Rinaldi is a Past-Chairman and Director of the Equipment Leasing and Finance Association (ELFA), the premier trade association representing the $1 trillion equipment finance sector. He is also a member of the Equipment Leasing & Finance Foundation’s Research Subcommittee and Development Committee. He is a past Trustee of the Foundation and past Chairman of ELFA’s LeasePAC. Rinaldi was the recipient of the Foundation Research Committee’s 2013 Steven R. LeBarron Award for Principled Research and ELFA’s 2014 David H. Fenig Distinguished Service in Advocacy Award.

Rinaldi can be found on LinkedIn and on his website
Comments From Our Members

Susan Carol • View APN Profile
This is a compelling article and I like the clever ending!
8.13.2018 @ 3:02 PM
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