Here’s a powerful way of dealing with most general credit issues while getting good, thorough credit information willingly from your prospect.
Though there may be lots of detail questions and supporting information needed for a complete credit application, when you really pare it down to the essentials, there are just three fundamental questions that any credit analyst must have answered to judge their interest in a transaction or for you to qualify it for the appropriate pricing. Helping your prospect to understand that, and asking your prospect those three questions -in advance- will help you be sure the prospect is realistic about his or her credit and that the prospect will provide the necessary information for you to submit the request to the underwriter most likely to approve it.
Here are the three crucial questions.
Financially speaking, what’s the strength of this transaction?
Where is that strength documented?
How is that strength made available to secure this lease obligation?
For the most part, the leases we do can be considered finance leases. For this discussion, I use the term finance lease to mean a lease where the credit decision is based primarily on the general credit worthiness of the intended lessee and the expected return on investment for the lessor, as opposed to making the credit decision based on the market or utility value of the leased equipment. Now, that’s not always an instinctive thing for a prospective lessee to understand. At the point the prospect's talking to us, that prospect is focused on what the proposed equipment will be doing for his or her business and that prospect may reasonably be expected to assume that value is just as obvious and just as important to our lease underwriters. Until we help the prospect to see it differently, he or she may consider the new equipment to be the strength of the transaction. We know, however, that’s not true. So here’s how to help the prospect see that and introduce the three crucial credit questions you'll need to answer.
Mr./Ms. Prospect, this equipment is important to you and your business because you understand what it will do for you. Obviously, my underwriters can’t know your business the way you do, and they’re certainly not experts in this kind of equipment. If they were, they may well want more control over your choices, add on certain service or maintenance fees and generally charge more. Instead, my underwriters let you determine what you need, what brand you want, how you’ll maintain it and when you want to get it. They’re really business and finance experts, not equipment experts. I will need to get some details about you and your business for them but, candidly, they’re really expecting me to be able to answer three key questions for them. I’d like to take a minute and get your help in how I should answer those.
First, financially speaking, what’s the strength of this transaction? For example, for some of my clients it’s extreme longevity in business; for some it’s many years of profitability; or lots of cash in the bank; or extremely strong owners. Sometimes, it’s a combination of those things and/or other things. They’re really looking to see here the ability to meet the lease obligation and a history of meeting other, similar, obligations.
Second, how is that strength documented? Audited financial statements, tax returns, public record filings, bank statements and credit references are the most common ways of documenting business financial strength. Personal financial statements, tax returns and retail credit reports are typically used when the business owner’s are a key part of the business’ strength.
Third, how is that strength made available to secure this lease obligation? Sometimes, a long, well-known track record of profitability and meeting obligations can be its own security. If the owners themselves are a key part of the business’ strength, then personal guarantees may be enough. Pledges of other types of collateral or contracts can also be used sometimes.
Mr./Ms. Prospect, let’s take a minute now to review these together so that I’m sure I’m answering them in the best way you’d want me to and the way that presents your business in the strongest possible light.
The reason this is such an effective way of handling this is that it’s simple, direct and takes all the pressure off of the salesperson and puts it where it belongs —on the prospect. Laying out those three questions, in that order, will also help any salesperson deal very effectively, and in advance, with some common objections.
Have you ever had a prospect say they were a very successful company but since they’re privately owned their financial statements couldn’t be released? Well, if they can’t be documented in question two, they’re not strength in answer to question one! How about the prospect that won’t show you a personal financial statement? Same answer. How about the prospect with the impressive personal financial statement that won’t personally guarantee? If it’s not available to secure the obligation in answer to question number three, it’s a not a strength in answer to question number one!
My answer to those prospects is equally simple and straightforward. "Do you remember the old Perry Mason show", I’ll ask the prospect, "when the judge would tell the jury to disregard something they just heard? Well, Mr. Prospect, you’ve put me in the same position. You’ve just told me to tell my underwriters to ignore that strength if it can’t be documented or made available to secure this obligation. In its place, what other strength would you like me to list instead?"
To be effective and productive you need to eliminate, early-on, any objections which could stall or prevent your sale from closing. To price and apply for the right lease —the approvable lease— you need a prospect that understands the process and is realistic about his credit strengths. This ‘Three Question App’ sales tool accomplishes that. Make using this a habit and you’ll get used to getting more approvals and with less effort.