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$100 Million a year---Leasing Co-Op One World Leasing (OWL) made its debut on “Meet the Leasing News Maker” yesterday at 11am California Daylight Savings Times. Up to 75 readers joined the session that featured both David Stearns, CEO of American Leasing Alliance MainStreet's Richard Selby, who will serve as interim CEO during the cooperative formation. During the session, the readers predicted a co-op of 90 plus brokers. Right now OWL is “recruiting” members who will each receive one share at the cost of $5,000 and 10% of the “bonus” earned income of the co-op. Their goal is 25 qualified brokers. Each member has one share only and cannot buy more than one. They have one vote in the election of directors or policy decisions. The idea is the volume rate discount can make the broker more competitive or earn more points per transaction, and at the end of the year, share in the profits of the co-op. The session lasted two hours. Here are some highlights: “What have the application of Co-ops been in professional service & risk industries (maybe insurance or other like industries)? “ [ David Stearns, OWL ANSWERS ] “Mutual insurance companies are Coops. Credit unions are Coops. The record is good. “ “Bank of the West gives brokers a half-point break if they do a $1 million a year, plus other monthly incentives to reach goals. There are other funders who also have such programs “ [ David Stearns, OWL ANSWERS ] “What do you think they'll give for $100MM per year? “ At one point in the questioning, it was stated the average volume per broker would be two million dollars per year. “There is no minimum volume commitment to the co-op. The $2MM is simply a guideline. The coop will most probably establish a limit on the high end ($75MM) - not the low end...Anything larger than approx. $75MM could be a competitor to the co-op. “ “Our average transaction size is $700,000, can the coop handle transaction this size and larger? “ “t is our expectation that, through the preferred lenders, the coop will be able to handle transactions of this size.” :”Which comes first? The co-op of brokers or the funder(s) for the co-op? “ [ David Stearns, OWL ANSWERS ] “The strategy is build the community of members first. However, lenders are being solicited at this time.” “Would you not agree that most funders these days are quality not quantity oriented? “ “The cooperative will be providing BOTH. “ ” How does this concept differ from First Sierra, UniCapital and LINC purchasing many small companies to achieve ‘economies of scale’" [ David Stearns, OWL ANSWERS ] “The cooperative is member owned - owned by you. The primary directive of the cooperative is to make money for it's members, on a pro-rata basis; not for the cooperative.” “How does this differ than a Super Broker?” “ The members get the profit. They not only get a lower buy rate, but also share in the profits of the co-op.” “As I understand it, brokers get the commission on the deals they submit, and perhaps at the end of the year, then quarterly or yearly co-op profits are divided to members? “ [ David Stearns, OWL ANSWERS ] “That's exactly correct. The rebates earned from the preferred lenders for a year, net of coop expenses, will be allocated to the members of the coop within 3-9 months from the end of the coop's year. “ “With fewer funding sources available what will be their motivation to buy from the co-op when they can buy direct at higher rates? “ “The preferred lenders will be looking to the cooperative to provide value added services to them as well. They will know that brokers have been pre-screened and adhere to certain member criteria. They will also be achieving substantially higher volumes with less administrative risks and costs. We have already had tremendous interest from the funding community.... The coop will not be a lessor - so won't provide reps and warrants. Members will be "selected" and "approved" by the coop and it's board which will allow the lenders comfort in "knowing who they're dealing with" and knowing the member must adhere to certain standards. Volume and consistency DOES reduce administrative costs for a lender even though they may need to deal with "multiple parties... The cooperative will work the preferred lenders to establish "standardized" documentation. The coop will not be the lessor. The lessor will either be the lender or the broker depending on mutual desire. The funders will realize increased volumes with less administrative costs. Standardized documentation, etc. They will know that a broker has joined the coop and will know that the broker has met certain criteria. ". “ A margin has to exist to fund the rebates ... as such, do you anticipate an decrease in buy rates when the deal is initially done [ David Stearns, OWL ANSWERS ] “We hope that the power that the coop creates will bring not only rebates but, also lower costs of funds. “
“Wouldn't the funders prefer to deal with a single, centralized credit processor? [ David Stearns, OWL ANSWERS ] Yes and that they may, in fact, be in the future. “ See our F.A.Q. for a lot of these questions: http://www.leasingnews.org/PDFFiles/OWL_FAQ.pdf” “ Could the delinquency & charge-off of 1 or 2 brokers effect the profits of all other coop members? “ “The coop will have not "liability" to the lenders for delinquencies or charge-offs. Hopefully, the opposite. By pooling the brokers together, the lenders will have a "broader base" with which to "cover" potential credit issues. Should provide brokers with less chance of being eliminated by a lender because of one ‘bad apple’. .. Just as NAELB ( National Association of Equipment Brokers) screens ethics, members can be ejected from the co-op by the membership for not adhering to the interest and guidelines of the membership.... “There will be a "Master Program Agreement" between the coop and the lenders. Each member company will have to sign a "sub-agreement" relative to standard reps and warrants, etc. “ “ If the exposure on bad deals is zero - then the price concessions given may be small as well?? “ [ David Stearns, OWL ANSWERS ] “Price concessions will be determined by the lenders based upon volume commitments of the cooperative. The larger the coop, the more successful it will be for all members. “ “Isn't there the risk of one 'bad apple' spoiling the reputation of the entire co-op? “ “ No. The co-op and it's board must be vigilant in maintaining the proper reputation of the coop - and ALL of it's members. The lenders will know that a "bad apple" will no longer have to dealt with, based upon the pro-activeness of the co-op and it's board. This is one of the "value added's" that the coop will be offering to the lenders. “ “Working with 90+ brokers will eventually ( and sooner than later ) create problems -- a funder having a bad experience with 1 or 2 can jeopardize the entire structure “ [ David Stearns, OWL ANSWERS ] “Answered earlier. The coop (members - all of you) will be providing value added service to the lenders in "policing" their members. “ Will rebates be paid directly to coop members based on share $ or funded volume? “Net income of the coop will be allocated to it's members on a pro-rata basis based upon funded volume. “ “Will you limit # of brokers to reduce the chance of competition for the same territory? “ [ David Stearns, OWL ANSWERS ] “Yes, at some point; as determined by the board. “ “How many employees and total expenses do you expect for the Co-op? “ “Not more than 3-4 employees in the mid-long term (dependent upon volume and success). Expenses will be proportionate to need. As a member owned company, the goal is to keep expenses low... Cooperative expenses are typically less than 10$ of total revenues generated (rebates received) based on Mainstreet's experience in the cooperative industry.” “Where will the credit processing facility be located?” [ David Stearns, OWL ANSWERS ] “You will be dealing directly with the preferred lender on credit submission and approval issues. At least at the outset. The cooperative will track, in conjunction with the preferred lenders, the submission, approval and funding ratios of the members. “ “The key then is a trusted and knowledgeable board of directors. Will they be subject to yearly elections? “Typically, it's a 3 year election with 1/3 of the directors being "rotated out" each year. "Term limits" are being considered. “ “Who is on the board today?” [ David Stearns, OWL ANSWERS ] “Whiteboard issue. ( This word was used often by David Stearns He defines “a whiteboard issue is one which has yet to be discussed or final decision to be decided upon.” While this may seem like an “evasive” answer, the co-op is leaving many decisions to be made by the board and members, rather than setting pre-scribed requirements such as “application only criteria,” and methods of regress, or other services, such as group medical benefits, shipping discounts, dun and bradstreet fees, and even group software costs.editor) “Will the board be composed of brokers only, or funders ,too? Only cooperative members. Perhaps outside directors with significant industry influence. Not funders - that would create a conflict of interest. “Will you have a "booth" at the ELA, NAELB,UAEL Conferences? “ “Perhaps in the future. Not this spring. The cooperative will be working with these associations to promote the leasing industry.” “How is the COOP to raise its initial funding?” [ David Stearns, OWL ANSWERS ] “Mainstreet and American Leasing Alliance have provided the "launch" funding. Member equity as well as traditional financing methods will provide the working capital needs of the coop.” “Why would you want to limit the number of members or impose geographical restrictions? “Competitive concerns primarily from a geographical standpoint. "Manageability" from a numbers perspective”. ] “ What part of the $5,000 up-front fee goes to Mainstreet? [ David Stearns, OWL ANSWERS ] “The initial $5,000 goes to fund the initial working capital of the cooperative. None goes to Mainstreet . For more information, please request a FAQ, etc. or go here: http://www.leasingnews.org/PDFFiles/OWL_FAQ.pdf” “Can the stock be sold back if the results are not satisfactory? “ [ David Stearns, OWL ANSWERS ] “Yes. Please request an FAQ. rselby@mainstreetcg.com or go here: http://www.leasingnews.org/PDFFiles/OWL_FAQ.pdf” “If the stock fee is $5,000 at this time, are you implying the co-op will "max out" at a number, or in the future, charging a higher initiation fee? “The co-op may decide to add a membership fee to the stock purchase amount for "later adopters". Subject to discretion of the board. “ “ Why would I want to join if my competitor is a member? “ “The cooperative will work to "manage" this situation. “ “ why are there competitive concerns if all members are reputable? I thought higher volume was the goal. “ “The goal of the co-op is to provide value to it's members. If an existing member might be "threatened" by a potential new entrant, that must be taken into consideration by the co-op. “ “Where does Mainstreet make its money? “ [ David Stearns, OWL ANSWERS ] “Please request an FAQ. rselby@mainstreetcg.com. or Go here: http://www.leasingnews.org/PDFFiles/OWL_FAQ.pdf”
“Besides quarterly profits, why should a broker choose OWL over his conventional funders? “ “You will not be obligated to utilize the resources of the cooperative. But, you will WANT to.”] “Will brokers be kicked off if caught doing unethical business, regardless of volume? “ [ David Stearns, OWL ANSWERS ] “Yes.” |
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