Community banks are uniquely positioned to support the specialized needs of the businesses in their local communities. However, without the scale of regional and national banking operations, it is challenging to truly deliver on all the needs of their local customers. Wholesale financing for dealers of manufactured goods, also known as floor plan financing, has typically been one such product offering that community banks have left to specialty financing companies, captive finance organizations of the manufacturers, or the large national banks.

In today’s market, banks of all sizes have recognized the need to differentiate themselves in order to remain competitive. To facilitate differentiation, there is now a general acceptance around partnering with fintechs in order to enable new products and services.

By partnering with Vero, a bank can not only develop a wholesale financing program, without investing in new systems or adding specialized headcount, but also, diversify their product offerings, while catering to a pivotal local business segment, thereby fostering economic growth.

So, what is wholesale financing?

Wholesale financing is a type of financial service offering that facilitates credit to manufacturers or dealers of goods. Dealers can use this capital to purchase bulk quantities of goods, with the intent of selling them onward to consumers. It creates an efficient financial supply chain, enabling dealers to manage their cash flow better and continue their operations without financial constraints. This, in turn, boosts local economies by ensuring the uninterrupted flow of goods and services.

Now, why should community banks be interested in this, especially in the face of uncertain economic conditions?

Dealers of manufactured goods have demonstrated notable resilience during economic cycles, often outperforming other verticals, such as commercial real estate. Their resilience can be attributed to the continuous consumer demand for manufactured goods, regardless of the economic environment. As such, banks providing wholesale financing to these dealers are likely to experience lower default rates and more stable returns, thereby contributing to the overall health and robustness of their loan portfolios.

Community banks are renowned for their personalized customer service and local market knowledge. As such, they are ideally positioned to offer tailored wholesale financing programs. These programs provide multiple benefits to both banks and their communities:

• Diversification: In an era of volatile financial markets, diversification is a cornerstone of risk management. Offering wholesale financing allows banks to diversify their loan portfolio, spreading risk across various sectors – in particular, away from concentrated positions in commercial real estate.
• Strengthening Local Economies: By providing dealers access to financing, community banks ensure a steady flow of goods within their communities, stimulating economic activity, and creating jobs. This also provides the opportunity to keep capital in the community, rather than flowing out to specialty finance companies or national banks.
• Building Strong Relationships: Wholesale financing offers an opportunity for banks to build and deepen relationships with local dealers, thereby strengthening their customer base.
• Competitive Advantage: Not all community banks offer wholesale financing. Therefore, those that do, distinguish themselves from their competitors, providing an additional service to attract and retain customers.

Of course, introducing such a program is not without its challenges. Community banks must consider the potential of various execution risks and the need for a comprehensive risk management operation. Additionally, they will need to ensure they have robust systems in place to manage the program effectively. Nonetheless, with careful planning and risk management, the benefits of wholesale financing programs can outweigh these challenges.

In a rapidly changing economic climate, community banks must adapt and evolve to meet their communities' needs. Wholesale financing offers a significant opportunity for these banks to support their local economy while growing their business. In the spirit of going far by going together, it's an opportunity worth exploring.