Why Community Banks Should Offer Equipment Leasing
Community banks have unique access to equipment leasing opportunities, but many are not taking advantage of – and profiting from – them.
As with any industry, leasing has had various periods and levels of annual growth. Our nation’s capital investment growth rate, customer liquidity levels, bank liquidity levels, and the current flavor of tax legislation and accounting rules all effect leasing activity. However, the market is large, growing and serves a crucial role in providing capital for businesses.
Many businesses, many of which may be your current customers, use some form of leasing from time to time. Captive banks and large money center banks hold the majority of lease-related earning assets in our country, with community banks holding less than 2%.
There are compelling reasons community banks should offer equipment leasing, including:
1. Community banks already have leasing customers. A middle market leasing customer typically:
- Is a family, multigenerational, closely held entity
- Has local or regional operations
- Maintains strong ties to the community
- Is highly reliant on their accountant and community bank
- Is very cautious with cash flow.
Sound familiar? Middle market leasing customer profiles are usually community bank customers.
2. I have found by an overwhelming margin, if and when a company does lease, they want to lease from a community bank they already know and trust.
3. Leasing helps community banks develop, expand, strengthen, solidify and retain customer relationships.
Customers won’t need to lease equipment every day, but when they do, banks need to respond and capture the opportunity and income.
I would like to emphasize an important point – offering leasing is never intended to replace a commercial loan opportunity for a bank. It is intended to simply capture an opportunity from a customer or prospect who has already made the decision to lease.
There are several reasons banks have historically not been more engaged in equipment leasing, such as:
- Leasing can involve estimating the future value of equipment. In some cases, if your estimate is incorrect, you could face a loss.
- Leasing involves tax law knowledge and specific documentation that must be used with different lease structures.
- Lease accounting systems can be quite expensive.
Banks have been wise to avoid getting involved with leasing without first understanding the risks, acquiring necessary talent, gaining important product knowledge and acquiring systems. But offering an equipment lease without risk and costs can be done. The best solution for a community bank is to partner with a correspondent bank which has strong leasing expertise, an established correspondent bank leasing program and shares in your dedication to preserving customer relationships.
Partnering with Bell Bank can make leasing easy. Our correspondent bank leasing program is specifically designed as a partnership, not a referral program, and can provide significant fee income or participation opportunities. Working together, we collaborate with lenders to create a unique lease that is best for each customer. On each transaction, Bell provides the very best in product knowledge, underwriting efficiency and complete servicing. Additionally, your bank and lenders stay in front of your customer. We can also assist your bank with marketing efforts to help identify and capture opportunities. And, there are never any costs or obligations.
Getting started is easy, and you can offer a leasing product immediately. Simply give us a call, or contact your correspondent banking officer. We’ll be happy to answer your questions by phone or meet in your bank at a convenient time.
SVP/Correspondent Bank Leasing Director