Navigating Subprime Paper

In the last five years, lenders have been competing for more powersports business. Some loosened credit requirements and extended loan terms, while others evaluated the use of alternative data to more accurately determine a person’s creditworthiness.

However, powersports dealers still struggle getting subprime paper bought. When my team is in the store and we see this struggle play out, we always ask how much effort is being put into maintaining lender relationships. The simple fact is, the stronger the relationship, the more willing a lender will be to negotiate and buy outside of their criteria.

So what does it take to develop strong lender relationships? When pondering this question, think beyond complete and accurate applications. It takes communication and the ability to manage expectations.

Do all your team members know lender criteria like the back of their hands?

It’s never a good idea to randomly submit an application hoping for an approval. This process increases each lender’s Look-to-Book ratio, and angers customers when they start receiving a bunch of denial letters in the mail. Each team member needs to clearly understand each lender’s criteria and only submit loans they know will be approved.

How well do they manage each lender’s Look-to-Book?

Each lender has its own goals for Look-to-Book. Make sure you are meeting those Look-to-Book goals to help with your negotiations. And, don’t be shy about asking lenders what those are.

In addition, the majority of the business you send their way should always be within their specialty. If not, the majority of your applications will be denied and you could potentially lose that lender relationship.

If an application is denied or approved but with less back-end margin, does your team know how to get on the phone with your preferred lender to find out why?

If your team is making sure to submit applications to the right lender, you should have few denials. And, if your team is managing lender relationships by meeting Look-to-Book goals, then it should be easier to ask for leeway. If a team member gets into a situation where they have a contract that they know will be denied, they should get on the phone with the lender as soon as the application is sent to begin negotiations. The last thing you want is to have a contract-in-transit for an indeterminate amount of time. The faster your team gets in contact with the lender, the faster the application can be processed.

In addition, if a loan application comes back approved, but the lender will only advance funds to cover the cost of the bike, your team member should have a strong enough relationship with the lender to call them to rehash the approval. Once again, if the lender’s book of business is well managed, it should be easier to ask the lender to advance more money to cover the sale of F&I products.

Is your team trained in keeping finance objectives in mind when helping customers make their selection?

Your team needs to know how to steer customers to bikes they can afford. This requires training your team to complete the Needs Discovery portion of the Road to the Sale before demoing any motorcycle. They need to ask qualifying questions based on each customer’s driving habits, employment status, and the ballpark figure of what they plan to spend. Then, they can present the customer with choices that fall within their budget. Making sure the customer can afford the motorcycle ensures more approved contracts and better margins for both sales and service.

With more than 40 years of experience helping dealers achieve their profitability goals, EFG Companies knows how to train your team to maintain quality lender relationships and foster growth. Contact us today to find out how.