SMEs, manual underwriting and local knowledge keep East Anglian broker Credo Asset Finance filling a void
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While much of the fleet leasing industry across Europe has muttered about consolidation in the market during the crisis years of post-2008, one UK broker sees opportunity in all things small, local and manual.
Credo Asset Finance, based in East Anglia, on the east coast of England, is a regional fleet broker which reckons it has found a gap in the market local SME fleets which falls between retail finance and major business fleet funders.
Definitely, says Simon Gray, Credos managing director, were filling a bit of a void.
Gray and Credo estimate, with many motor dealerships working with lenders who fund more in retail than assets, the average UK dealership is losing £25,000 annually on small business fleet deals which retail finance partners decline following credit-check failures.
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By GlobalDataGray identified at least 10% of deals done by car dealerships as being linked to businesses, and said that half of those deals fall through following credit checks.
Grays says some funders can get very twitchy over a £25,000 deal if the client business has lost money lately, which, as Gray points out, is common for a small local business in these times.
Lets face it, in the credit crunch, there have been a lot of companies which have lost money.
Theyre being declined by those general providers. Maybe theyve got a negative balance sheet or theyre a new-start company, theyd be declined as well, says Gray.
This is the point where Credo aims to step in, with its Agreed Finance product which Gray believes can stem the tide of lost SME fleet business at dealerships.
Manual underwriting
The products USP, says Gray, is in a guaranteed 30-minute turnaround for an initial pre-underwrite, in which Credo will do research on the potential customer and decide on the potential for a deal.
The minute a deal falls out of the remit of retail funders, thats where we step in and rescue the deal, says Gray. We get 80% of our proposals agreed.
Credo is able to rescue such deals through manual underwriting rather than credit score systems, which Gray says restrict what business a lot of the major finance companies are willing to do.
If you think about the culture in finance companies at the moment, with the credit crunch as it is, if a deal declines for whatever reason on their system, theyve got to be a brave man to say: No, actually, our system was wrong and Im going to say yes, because if that deal subsequently goes wrong, its their head on the chopping block.
They run a bit scared from the pressure, says Gray.
By contrast, credit scores are irrelevant to the business Credo does and are not used by the broker or the funders it works with.
Credo, which leases IT equipment, industrial and plant machinery as well as vehicles, works with big lenders such as ING Lease, Close Brothers and others but also with a few independents and runs its own book for local deals.
As well as allowing Credo to pick up business being dropped by automatic underwriters, Gray says the manual system has given them a stronger book than competitors.
We get statistics from our lenders as to the default on our book, bearing in mind were using the flexible lenders, not the credit score lenders, and our default levels are minimal, very minimal.
Probably much less than the credit score underwriters would have on their book.
Gray says Credos own book for local deals is close to nil default, and that the firms £15m ING Lease book is 0.2% in arrears.
Thats ridiculously low. It just shows that it can be done and it can be done properly, correctly and come up with the right result where youre not putting rubbish on the books, says Gray.
Part of the key to keeping rubbish off the books for Credo is using local knowledge, particularly because the company benefits from East Anglia being a good area for professional and earnest companies.
Generally, its a good area, he says. The quality of business is, generally, very good. Its quite an affluent area, which helps, and its not massively industrialised.
What you tend to find is there are a lot more SMEs around than large corporates, and if we offer SMEs special attention, we do well with that.
Credo is not the only company looking to generate good business from relationships with local, dealership-introduced SME business.
In Julys Leasing Life, large captives Mercedes-Benz Financial Services and Volkswagen Financial Services, and European independent fleet lessor LeasePlan all identified regional SME business as a strategic growth area (see Small but Perfectly Formed, LL 226 July).
While these large firms are looking to go local, Credo has its eye on outward expansion.
Although the firm currently operates mainly across East Anglia, it can do business nationwide and aims to take Agreed Finance across the UK, region-by-region.
What were doing with the Agreed Finance is pushing it out regionally so were, for the next three or four months, going to employ sales reps on the periphery of East Anglia.
Well start with South Essex, up to Bedfordshire, Lincolnshire, and then hopefully keep working outwards on a regional basis, says Gray.
