Article: Factoring in Focus
With a rich history of lending experience, Chris Lehnes utilizes
factoring education and referral source marketing to enhance
business development at Versant Funding and help commercial
loan brokers diversify their alternative loan options for small
business clients.
Chris Lehnes, business development officer at Versant Funding, has made it an ongoing
personal challenge to educate financial professionals about factoring. “It’s not anybody’s
first choice of financing. I talk to a lot of newly-minted brokers thinking about focusing on
commercial real estate lines of credit or merchant cash. They don’t often plan to focus on
factoring,” Lehnes says.
A greater awareness of the benefits of factoring can give commercial loan brokers a broader range of alternative credit options for small businesses. This is particularly relevant in
the COVID-19 pandemic economy, as companies struggle to keep their doors open and
many can no longer meet traditional credit parameters, Lehnes says.
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“A lot of small businesses, all they know
about finance is the bank. All they know
is that if you need a loan, you go to the
bank, and when the bank can’t meet
their needs, they’re going to need help,”
Lehnes says. “Well-trained commercial
loan brokers will be a great asset to small
businesses in this market.”
Learning the Landscape
Lehnes’ own career journey began at a
bank, where he worked for a year and a
half before being recruited by a non-bank
lender. “I got hired as a documentation
specialist at AT&T Capital in their SBA
group, which also introduced me to SBA
financing,” Lehnes says. “And then I spent
the next 15 years there.”
AT&T Capital changed hands several times,
eventually becoming CIT. Throughout that
period, Lehnes worked in documentation,
credit underwriting and operations management before moving into a leadership
role where he oversaw lead generation,
national accounts and direct marketing
efforts.
From CIT, Lehnes moved to another nonbank lender doing SBA loans. In 2008, the
company lost funding due to the credit
crisis and let its entire team go. On his
way out the door, Lehnes was approached
by Mark Weinberg, currently president and
CEO of Versant Funding, who ran an affiliated factoring group at the time. Lehnes
agreed to begin looking for factoring deals
for Weinberg until Lehnes could find a
position in the SBA industry.
Lehnes found it appealing that Versant
specialized in one thing: factoring. He
learned a lot about the product over time
and grew a nice sized book of business.
After five years, Lehnes left Versant to
join a company with a more diverse
lending offering but eventually realized
that Versant was where he belonged and
returned in 2019.
Marketing Audience Matters
Lehnes honed his business development
skills at CIT, focusing on marketing to
referral sources. In the factoring world,
there is minimal benefit to marketing to
business owners, as they are less familiar with what factoring is and when they
should use it, Lehnes says. Instead, he
focuses on intermediaries, advisors and
trusted specialists.
“All my efforts are getting in front of, and
speaking with, bankers, attorneys, consultants and coaches, and all those people
that help small businesses get through
their challenges, so that when one of
their challenges could be met by factoring
they can recommend what I do,” Lehnes
says. “Then I’m getting an introduction to
a customer or a prospect, whoever has
provided some endorsement of me.”
These marketing efforts also support
Lehnes’ desire to have a broad network of
referral sources to keep deal flow coming
in. As a boutique factoring company,
Versant targets “difficult deals” that other
factors wouldn’t normally pursue, including businesses with poor financial performance and credit issues or newly founded
companies with no track record.
“We’re not going to do dozens of deals
a month like some factoring companies.
We’re going to do a handful of deals in
a year and grow our portfolio slowly and
deliberately,” Lehnes says. “I know there
are plenty of business development professionals out there in the industry that
have a nice core group of referral sources
that keep them busy. Instead, I just have
a really huge network, some of which I
might only hear from once a year, or even
less, but that large network is enough to
keep the pipeline going.”
Bridging the Credit Gap
By focusing on tougher deals, Versant
Funding deals with short-term relationships lasting 24 months or fewer with the
majority of its clients. “Sometimes they’ll
renew with us and stick around a little
longer, but we fully acknowledge that
we’re a bridge,” Lehnes says. “We’re a way
to get a business to the next step of their
evolution, where they’re stable enough to
get bank financing, or they’re large enough
to go out and raise equity, or just that
they’re profitable and can move on to a
cheaper form of financing.”
Versant Funding is national in scope, with
a preference for U.S.-based businesses
with domestic receivables. Average annual
revenue for its clients is usually between
$5 million and $10 million, although the
company can fund deals from $100,000 to
$10 million per month in factoring volume,
Lehnes says. Some of its clients are small
businesses and others are middle market
companies, while many are privately
or family-owned, or have professional
ownership with private equity backing
“We’re fine with all of those structures, so
our client base covers a pretty big range,”
Lehnes says.
Looking Beyond COVID-19
Lehnes’ immediate goal is figuring out the
new world order and how the COVID-19
pandemic changed which deals to pursue.
“Businesses that sell heavily into traditional retailers, that do a lot of work with
the oil and gas industry, or the travel
industry, those are all areas that looked
great nine months ago that now we’re very
cautious about,” Lehnes says.
In the long term, Lehnes expects to see a
continuing pullback of credit from traditional sources across the industry as defaults and delinquencies increase. “When
lines come up for renewal, I think we’re
going to see banks being really careful,”
Lehnes says. “What we’ve seen in some
previous recessions is that banks will work
hard to hold on to the customers that
they really want and will neglect or let go
of the rest.” This will create opportunities
for non-traditional lenders to fill the gaps.
While Versant is well capitalized, many
factors and non-bank lenders rely upon
banks to provide them a line of credit to
meet their funding needs, Lehnes says.
“I wouldn’t be surprised if we see some
pretty good scrutiny of some of those
lines of credit. Many small factoring companies are funded by other factors, some
of which may have made some unwise
choices during these times and might be
struggling to continue to refactor some of
their smaller partners,” Lehnes says.
Educating the Market
Lehnes always keeps factoring education
in the forefront so brokers can put it to
their client’s advantage when the time
comes. “Factoring is not well known, and a
lot of times what is known about factoring scares people,” Lehnes says. “They’ve
heard a bad story about some factor that
was an ‘evildoer’ and did some things that
they shouldn’t have done, and that story
goes everywhere.” He sees the coming
months as pivotal for re-education.
For commercial loan brokers looking to
even out their own cash flow, building a
book of factoring transactions goes a long
way. “While it’s great to close a real estate
deal and get a nice big check at closing,
that’s one check,” Lehnes says. “Factoring
provides an ongoing commission. You
close a factoring deal; you’re going to get
a commission monthly for the life of the
deal.”
ABOUT THE AUTHOR – Article: Factoring in Focus
Grace A. Garwood is a freelance writer and editor based in Brooklyn, NY.
Rita E. Garwood, editor in chief of DealMaker, interviewed Chris Lehnes
for this article.