Q&A with Bill Thompson, founder of Cardinal Points Network

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Bill Thompson is the founder of Cardinal Points Network, a Cleveland-based company that works with boat dealers, manufacturers and lenders to improve access to financing.

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Thompson, 42, has 18 years of experience in financial services. Before starting Cardinal Points Network (www.cardinalpointsnetwork.com), he was a finance and marketing executive at KeyBank, Wachovia Bank and Secured Marine Trust, working with the marine and RV industries, among others. Thompson says his goal is to help dealers and manufacturers obtain inventory financing and he does this through educational programs, advocacy and lender management consulting.

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Thompson has been married to his wife, Audra, for 17 years, and they have three children: Nolan, 16, Paige, 12, and Chloe, 10. When not helping clients, he enjoys spending time with his family "anywhere near the water," cooking and entertaining, volunteering at church, skiing and golfing.

Q: What are the current states of retail and commercial lending?

A: I think retail lending is in better shape than commercial lending. A lot of that has to do with it being easier to bring in alternative lenders to do a loan for an individual than it is for somebody to do commercial lending. Some of the top end of the finance sources that haven't left the market are dealing with the 750 [credit score] and above customers, and you have the finance sources that deal with the low end of the market - the near-prime or subprime lenders that haven't gone away. It's the customer in the middle that's lost a national lender and by in the middle I mean the customer that scores 650 to 720ish.

If the dealers have been active - and many of them have - and the customers have been active - and many of them have - they're going to credit unions. They're going to local banks, which ... don't have a problem doing a small number of those loans. And they're going to some of these other sources.

The low-end lenders have been able to get a higher quality customer if that customer is willing to pay the rates charged. So there have been more places for them to go.

Commercial lending is another story. The obvious part is there's two national lenders left - one in a big way, one in a small way. And banks are reticent to lend money to any business today, regardless of the industry. Then you add to it a cyclical industry that is viewed by banks as being higher risk and they're not as likely to come in. What I find interesting is the big, healthy dealers are still able to find money and the little, healthy dealers always had a small-bank relationship, so they're able to leverage that. The medium-sized dealers, $2 million to $10 million in sales - it gets a little trickier for them because they need more money than a small dealer, but the small banks aren't willing to lend that much.

In the past they relied on real estate [for collateral], but nobody wants to lend in real estate because we haven't seen that bubble burst yet. And they know it's coming in commercial real estate. So the only true assets a lot of these guys have, other than inventory, people don't want to lend against.

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Q: Where do you see this situation headed in 2010, and do you think there will be improvements in either area?

A: I think you'll continue to see improvement on the retail side, as other lenders understand the customer they can get. We drive a high-quality customer that these banks not only want for a loan, but for everything else they do in their lives. So that will be a slow, steady increase. I do not expect a national lender to jump in; I expect it to be regional lenders.

On the floorplan side, it's going to be slower. It's going to be local and regional banks - those that finally are able to start lending. I think you're going to see a creeping up of where we originally had four to six sources, [to] it being 50 to 100 sources. But it's not going to happen as fast as we would like.

In many cases, it becomes as important to keep a current floorplan source as it is to find a new one and, while you may be uncomfortable with what you're seeing from your current floorplan source, they're lending money.

Q: Do you think floorplan interest rates will continue to rise or will they level off?

A: If you look at a triple C-rated public company, which is a junk bond status, and you look at what they're borrowing money at in the bond market, a 16.5 percent interest rate is not uncommon. If you're able to borrow from a bank, your costs are going to be less by the nature of a banking relationship. If you're borrowing from a finance company, it's going to be more.

I think rates are going to get lower than they are now. I don't think [we] will ever see the low rates we saw two years ago.

Q: Why has the Small Business Administration's floorplan loan program for dealers not been as successful as some in the industry hoped?

A: The program has largely been ineffective for a couple of reasons: 1) The way it was structured doesn't offer enough of a carrot to a bank, and 2) our businesses aren't presenting themselves as an equal match as far as risk to those businesses we're competing against to borrow that money. It's no longer an industry bank. It's just a bank, and they have to become comfortable with your business before there's even any talk of how we get to the SBA program. That's as big an issue as how the program is structured.

Q: Dealers have been told they need to educate their local banks and credit unions about the boating business. What are the most important factors to stress?

A: The first thing to do is make the bank comfortable with the business. Here's what we do in our business: We sell boats to these customers. Talk about the demographic you're going for and why that makes sense. Is your dealership on a lake, drawing affluent customers from a big city? Is it on the ocean? Is it on the fishing side and you're selling aluminum boats? What else are you deriving from that marketplace?

A banker thinks, OK, he sells a boat, and then December, January and February they hibernate. Well, no, we don't hibernate. We sell parts and accessories. We do winterizations. We are at the boat shows selling. We are getting our docks ready, and we're getting deposits for docks. All of these things that make the business run, and how cash is run through that, you need to be able to explain and demonstrate to a bank.

Here's our demographic, here are the people we draw in, and here's why they should look good to you as a bank. Here's how we make money. Here's what our manufacturers look like. Here's our CSI rating from our manufacturers, J.D. Power awards. Here are the things that make the brands we're selling look good.

Q: Where are some other places dealers can go for a loan?

A: When I talk to dealers about getting a [floorplan] loan, I hear the same names of banks over and over again. They're big banks, they're super regionals, they have SBA offices - but over and over again dealers are being turned away. These banks, for whatever reason, have made a decision not to play in our marketplace, so ... you're going to run into the same wall, ultimately.

Guys that are finding money are looking at their small banks, their locals. There have been a couple that have found a way to do some commercial lending with a credit union. Little banks, five-branch banks you wouldn't think to go into, didn't pay attention when you drove past them - turn in and meet the guy. These are the guys you need to familiarize yourselves with. You've got to look smaller, regional, local. Forget about the big guys at this point. Talk to your credit unions. Most of them don't provide commercial lending, but some do.

And then [there are] local businessmen who are familiar with who you are and what your business is and are looking for places to invest money. They don't want to put it in the market; they want other places to invest. But, again, you have to prove to those people why you're viable for them. That's a very honest place to get money for any business, including ours.

Q: The state of the boating industry is often tied to home ownership, consumer confidence and auto sales. Where do those stand, and what can we expect in 2010?

A: We're a feel-good purchase because it is about fun. If you have a place to live, you don't need a new [home] right now. If you have a car that runs, you're not going to buy a new car right now because ... you're nervous, which speaks to consumer confidence. If they're not willing or able to buy a bigger house, to buy a nicer car, we fall under the second level of emotional purchases, with a boat or an RV being a good parallel.

I've read that one in four homes today is under water from a value standpoint, one in seven homes [are in] delinquency, and one in 10 people are unemployed. So it becomes, What do I need? If I'm not going to step forward with what I need, what I want becomes a big issue because that's a couple of tiers down.

I look at what's going to happen with homes, and when one in 10 people aren't working, and one in seven homes has a delinquency on it - that needs to right itself. [When] you see unemployment improve, people will feel better about buying things, then they'll start to buy the big-ticket items. They'll take advantage of what's going on in the home market. They'll move up in homes, they'll buy a nicer car and then they'll go buy a boat.

I think we're looking at - and this is a personal opinion - the third quarter of 2010 before you see any real lift. There are markets that are improving faster; there are pieces that are happening faster. But the larger market - we've got three more quarters to get through.

Q: Where do you see the boating industry a year from now?

A: It's an interesting time because the strong that survive will reap the benefits. Arguably, we started to go down in '05, and, arguably, we'll creep out slowly in 2010. With fewer dealers, fewer manufacturers, those [who] kept business prudent throughout the past five years - and are able to continue business prudence through the next five years - will see their sales grow, will see their net worth grow, will see their profits grow.

We will have a smaller, stronger industry that will better service customers because they've had to service in order to gain any income over the past two years. [They] will have more things to sell as far as parts and accessories and pro shop items because they understand that's what wraps them around their customer better.

This article originally appeared in the January 2010 issue.

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