Crunching up brokers?

 

There has been much coverage of the credit crunch in the
financial trade press in recent weeks. The effects have been felt
by brokers from across the whole commercial finance spectrum but,
contrary to popular reporting, it’s probably not quite the disaster
that’s being portrayed – yet. Brokers are undoubtedly having a
tougher time of it than they were twelve months ago; underwriters
are tightening their criteria, and a deal which would have been a
shoo-in a year ago will now require a lot more information about
the client to be supplied for underwriting purposes than it would
have done previously.

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Stefan Erentraut, owner of MVM
Vehicle Contracts (one of our vehicle finance broker members as
well as the head of the NACFB’s Vehicle Finance division) has seen
underwriters look for full details of both company directors’ and
private individuals’ income and expenditure before a deal has been
underwritten. He says that of the five deals submitted recently
three have been returned with requests for supplementary
information.

Beneficial fall-out

But it’s possible that these tougher times might end up being
good news for the vehicle finance broker industry as a whole. One
of the largest challenges faced by the broker industry is, after
years of less than glowing press, that of building a professional
reputation: and the relatively relaxed market conditions of recent
years have made that more of a challenge than ever.

In recent years, it has been relatively easy to set yourself up in
a brokerage – market conditions have meant that there has been a
lot of cheap money about and underwriters were less cautious about
the business they signed off. Competition, as a result, had
increased – not in itself a bad thing, but a side effect has been
that it has ‘encouraged’ a small number of either inexperienced or
rogue brokers to cut corners and indulge in less-than scrupulous
habits to try to get ahead of the competition. The reputation of
the industry as whole has suffered because of it.

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But with the market tightening, these brokers should find it more
difficult to operate; underwriting is stricter, money isn’t as easy
to come by and care needs to be taken when deals are put together.
In effect, the market is cleaning up its own act.

So what will be the first challenge of 2008?

Manufacturers are looking to realign their fleet allowances which
will have the knock on effect of increasing contract hire rentals.
This will obviously impact on the broker as margins tighten and
they will need to work harder to sell the benefits of using brokers
to their clients.  But those with a more optimistic outlook
might view this as an opportunity: when markets contract, and money
is harder to come by, that’s exactly the time you need an expert to
find the best finance for you.