Strengthening Lender Relationships
The magic of the sale business office comes from building strong relationships with lenders. The practice of broadcast faxing the same credit application to multiple lenders often damages those relationships by increasing lenders’ cost of doing business.
If you want higher participation, consider the cause and effect of your current practices. Change your daily routine. An evaluation of your current procedures can streamline your process, increase cash flow, and decrease your lender’s cost of doing business and strengthen your lender relationship.
Become Informed: View the credit bureau of each finance customer before submitting the deal to a lender. Direct the application to the lender who will likely approve the deal. Deals properly structured and submitted will speed funding.
Structure Deals for Funding: Get acquainted with the buy rates, policies, and practices of each lender. Inquire about their loan underwriting guidelines and tier qualifications. Share what you learn about lender policies and practices with your sales managers. The front gross is only as good as the ability of the dealership to get the deal funded. Structure deals with this in mind.
Manage the Cost of Doing Business: Kelly Enterprises has surveyed lenders about their cost of processing applications, funding deals, and keeping non-producing dealerships on the books. Results show the average cost of processing a credit application is $72.50. The average cost of funding an approved loan $140.00.
Verify Documentation: The cost of incomplete funding packages averages $80.37. In addition, 50-65% of packages submitted for processing cannot be funded due to incomplete documentation. Missing signatures on contracts and loan assignment lines are often the culprits.
Manage the Cost of Non-Producing Dealers: Shot-gunned applications lower customers’ beacon scores and create costs for the lenders who do not receive loan packages for funding. These lenders incur expense to keep the dealer body informed about their programs via facsimile, e-mail, field personnel, and hiring and training loan underwriters. These expenses equate to an average cost of $ 357.50 per month or $4,290 annual outlay.
Finance Reserve Participation: Dealers want fast turn around on credit decisions, contract funding, and a high level of reserve participation. As more lenders enter the risk-based lending arena, they need to keep costs down in order to maintain a competitive market edge.
Current Practices: Dealership managers instruct F&I managers to shot gun applications in order to expedite approvals. Often the deals submitted are not within lending guidelines and must be restructured in order to obtain funding. Sales managers are not adhering to lender guidelines. The gross profit of any deal is only as good as the ability to be funded on the outstanding balance.
Frequently, applications submitted to lenders are incomplete. Sales business managers are not allowed to conduct credit interviews. They receive the file after the customer has left the lot. Poor credit, no credit interview, and an incomplete application result in a low approval ratio.
Lenders Track Dealership Activity: Lenders review the dealership’s look to book ratios daily. Dealerships should keep similar records. Review these statistics often to recognize lender trends. Sales business managers should prepare a month-end lender activity report.
Benefits of Working Smarter: Decreasing the lender’s cost of doing business may very well increase dealership profits. Lenders and dealers must use the same playbook. For the most part, buy rates are competitive. The time it takes to process applications is about the same. Lender guidelines are identified on the rate sheets. Sales managers should allow sales business managers to get involved in deals early and often.
Most sales managers will pull the credit reports. They should also confer with the sales business managers about the best lender to use. Structuring a deal properly from the start can increase CSI and create a positive work environment. No likes to come to work every day to do battle on every front.
The professional sales business manager knows lenders and knows their policies. Properly evaluate the tier of credit you are dealing with. Verify each lender’s tier criteria.
Some general guidelines follow.
Tier A
No derogatory credit on bureaus
Beacon score of 700 – 729
Beacon score of higher than 730 are A +++
Home owner
Like high credit
In line advance
Customer has equity in the unit
Tier B
Maybe one old, small 30- days late
Beacon score of 675- 699
May be new to area
Continuous employment in same field
Has some down payment
May have great credit and need extended terms
Tier C
May be collection accounts
Slow pay, charge offs
Beacon 640-674
Rent / lease primary residence
New to area
New to job
No down
Tier D
Repossessions
Bankruptcies
No down
Extended terms
Beacon score below 639
Lender requires dealership to pay points to secure financing
Lenders want to make deals that make sense. Our business is built on relationships. Lenders are the dealership’s partners in the future. We need them and they need us. Now is the time to reevaluate your current practices for loan approval. Streamline your process by sending complete applications. Structure your deals within lender guidelines to increase your approval ratios. Build loyalty in your lender relationships. When you need a favor from your lender, you can rely on the firm foundation you have built with them