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THE NON-APPROVED APPROVAL

This is a tactic employed by some commercial finance and leasing salespeople with the full blessing and encouragement of their management. Essentially many companies employ a policy of say anything but never put it in writing. They truly believe the ends justify the means.

As I write this article in June 2013 I am dealing with a live situation for customer in Turlock, CA and I’ve decided to describe that situation rather than write a technical report.

The company, an existing customer of ours, came to us and asked that we provide $246,000 for two pieces of equipment they needed for new contracts they just executed. They provided us with a complete credit and financial package with the exception of the 2012 corporate tax return and the 2012 tax returns for the owners of the business. Apparently they changed accounting firms during the year and it was taking the new firm a very long time to do the necessary auditing to issue a statement or tax return. The owners didn’t produce their returns because the corporate returns were not complete. In addition they simply weren’t sure when the returns would be ready and they needed the equipment yesterday.

We analyzed the request and the information we had and we believed we could approve their request in two separate loans and they would be at a slightly higher rate because we couldn’t show the 2012 returns. We checked with the lenders we selected to work with to make sure the equipment was acceptable and that the credit was strong enough for the amount requested. We formally submitted and formally approved the request in two days.

What we didn’t know is that the customer had originally decided to use a different leasing broker because that broker assured the customer that they could offer an approval with the information provided at a much lower rate than we were offering. After a day or so our competitor’s salesperson actually approved the request verbally and our customer sent them an $8,000.00 deposit.

The reality is that the competitor did not have a formal approve them but rather had an informal approval that was contingent upon presentment of the 2012 tax returns and that those returns showed operating results better than or equal to the 2011 tax return. To top it all off the competitor wouldn’t return the $8,000.00 unless our customer gave them an extra week to provide an approval without the tax returns which did not exist.

Now our customer was stuck dealing with a company that had not only lied to them but was essentially holding them hostage by virtue of the $8,000.00. We did all the work required and provided a good approval at a fair rate based on the actual information available. Our lender devoted their resources to review and approve the transaction.

The likely outcome of this situation will be that our competition may be able to duplicate the approvals that we provided but it is more than likely the cost of funds and the competitor’s commission will be significantly higher than ours. Since they have the customer’s money it is also likely the customer will decide
to move forward with the competition rather than simply write off the $8,000.00. We lose, our lender loses and our customer loses the most.

UP DATE
Our customer decided they couldn’t trust and would not to work with the company that was holding their $8,000.00 deposit. The customer bit the bullet and did the deal through Charter Capital and with a little guidance from us they were able to eventually recover most of the $8,000.00.

We offer this informational document as our opinion based on over 40 years of experience in the commercial finance industry and suggest that you to use it as a part of your decision making process. As with all important decisions, especially financial decisions, we also suggest that you consider all aspects carefully and consult with your attorney or accountant or other party who is knowledgeable about financial matters when considering entering into a legally binding agreement.

About Charter Capital

Charter Capital is a family owned and operated commercial finance broker. Since 1977 we have been providing businesses just like yours with equipment and technology leases and loans that are right for their specific financing needs. Nothing we do is standard.