Saturday, July 8, 2017

Shop Until You Drop Can Kill Your Customer's Credit As Well As Your Deal!

In most situations where you take the time to shop for the best deal, you end up with the best deal. However, there is one major exception to this rule. In the finance industry "shopping" may hurt your chances of getting the best deal. You ask, "How can that happen?" Let me explain:

Let’s say that you send your customer’s commercial credit application to a lease broker who sends the application to five different full service leasing companies. The broker must shop the deal to obtain an approval as well as to increase his profit. Since a broker makes his profit on the spread, it is important for him not only to get the application approved, but also to get it approved at the lowest lease rate factor. As a result of this "shopping," your customer’s personal credit report will indicate that at least five recent inquires were made. Unfortunately, each inquiry negatively impacts your customer’s overall personal credit rating, thereby decreasing the probability that his credit application will be approved. In fact, some leasing companies as part of their application approval process have built an automatic rejection factor into their scoring model if a customer’s personal credit report exceeds a preset number of inquires within a specific period of time.

How do you solve this problem? First, gain more control over your lease transactions by working with a leasing company that does its own credit, documentation and billing. Direct funding sources make their own credit decisions and they do not need to "shop" their deals to approve and fund their transactions. Secondly, try to get a competitive rate for your customer, not necessarily the lowest rate. Have you ever received a great rate from a leasing company that looked fantastic up front, but in the final analysis the leasing company was unable to fund that rate? Remember that it is much better for a vendor to be funded with a competitive rate than not to be funded with a great rate.