Credit Crunch

It has probably happened to you before: You have a customer who wants your product and needs financing, but they are declined for credit. You are then put in a position in which you could either let the customer walk; or worse, allow them to visit your competitor who might be able to get them financed.

You might ask yourself, how could your competitor obtain financing for this customer if you could not? The answer is simple—your competitor may utilize a secondary lender.

A secondary lender is able to approve the customers other lenders decline. Traditional primary lenders use a customer’s FICO score to make a credit decision, while secondary lenders will review your customer’s overall credit history—time on the job, time at residence, current debt situation, etc. Some secondary lenders are even able to approve customers who have had a previous bankruptcy.

How Secondary Lenders Work

When utilizing a traditional lender, you are funded 100% of the financed amount. With a secondary lender, you receive a percentage of the financed amount based on the customer’s credit. The percentage offered to you is based on the secondary lender’s risk analysis of potential charge off.

Most secondary lenders offer 100% nonrecourse programs. This means that after your contract is funded, if the customer skips town or does not make a payment, you do not have to worry about it. Tracking the customer down and collecting the money is the lender’s responsibility, not yours. Because the secondary lender assumes 100% of the risk, a discount is taken from each contract.

Let’s say, for example, you have a $10,000 sale and the traditional lender declines your customer. That leaves you with no sale and no profit. Now, let’s say you submit that same credit application to a secondary lender who approves the customer and offers 85% of the amount financed for the contract. This changes everything because instead of losing the sale, you will now be funded $8,500, which is much better than no money at all.

There will be times when you submit an application and the offer you receive is not enough to cover your cost. That’s okay—just because you are offered an amount does not mean you have to take it. With secondary lending, you are the one in control of which sales you walk away from, not the finance company.

If you are not currently utilizing a secondary lender, you could be losing out on hundreds of sales each year. You work too hard to achieve a sale; you should not allow a traditional lender to keep you from closing the deal.

Having a secondary lender on your side will give you the ability to increase your overall sales volume and put you in control of which deals you walk away from or decide to keep. This way you are guaranteed a chance of approving all your customers rather than your competitor doing so. The power of approval rests in your hands.

Pam Prickett is sales manager for Carmel Financial. Prickett can be reached at 800.964.0672 or by e-mail at pamp@carmelfinancial.com.

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