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May 25, 2009 – Quite the Lineup

By Neil Pascale
A company primarily known in the outdoor power equipment industry is stepping forward as perhaps the most exciting item — with or without wheels — to be unveiled this spring: a new motorcycle retail lending source.
Sheffield Financial suddenly has emerged as a vital player in the powersports retail financing arena thanks to notable agreements announced in the past couple of weeks. Sheffield Financial, a subsidiary of one of the largest U.S. banks, has signed with Kawasaki Motors Corp., U.S.A and BRP to provide retail financing to their dealers. Sheffield Financial, which is headquartered in Winston-Salem, N.C., and owned by BB&T Corp., had arranged retail-financing partnerships earlier this year with American Suzuki Motor Corp. and Polaris Industries.
How has Sheffield Financial been able to step into such a prominent role in a part of the industry that has seen a couple of large lenders take a step back?
“We are very fortunate to have a very solid parent company,” Sheffield Financial CEO Jack Snow said in an interview with Powersports Business.
In fact, BB&T Corp., the 11th largest financial holding company in the United States according to a press release, has allocated in excess of $1 bilion in 2009 for Sheffield’s growth in the powersports industry, Snow says.
“We don’t have unlimited capital,” he said, “but we have ample capital.”
Sheffield Financial has been a part of the powersports industry in a much more limited way for more than five years due to its relationship with Arctic Cat. The agreements announced this year, however, mean Sheffield is entering a whole new category: motorcycles.
The new category comes with a learning curve, one that will have an effect on the company’s consumer lending approval rates. Snow says Sheffield Financial is being aggressive internally with trying to improve these rates, albeit in a smart fashion. “We’re not in the business to write bad loans but we are in the business to take risks,” he said, emphasizing the company “wants to take calculated risks.”
Toward that end, Sheffield Financial enacted a policy on April 15 that requires its company’s supervisors to review any loan application that is initially turned down. The idea is any loan rejection “gets a double look from our most experienced underwriters,” Snow said. “We expect in the motorcycle business our approval rates to increase substantially over the next year to two years. I’m not ashamed to tell you we’re learning and we’re going to get a whole lot better at the motorcycle business.”
Snow said Sheffield’s approval rate “remains very, very strong” in the ATV, snowmobile, trailer and power equipment segments, although he declined to provide approval rate percentages. He did say the company is seeking to approve somewhere between 50-60 percent of applications from motorcycle-shopping consumers.
“We’re just not there on the motorcycles,” he said. “We will be there soon and that’s why we enacted these new policies.”
What hasn’t changed is the unique way in which Sheffield makes lending decisions, Snow says, mentioning credit scores as an example. “We’re not a Beacon score company or a credit score company,” he said. “Credit is actually the very last thing that we look at.”
Instead, Sheffield Financial uses the same internal scoring model that Snow’s wife, Bonnie, developed in 1992 when she started the company. That scoring model places a high emphasis on a customer’s background.
“We feel there is a way to grow tremendously but also have low past dues and low bad debt and that’s through stability of the customer,” he said.
Snow cited an example of a teacher who has taught for eight years and lived in a residence for 10-12 years but perhaps has been late or a little slow on paying bills. “We will approve that customer everyday,” he said.
The Sheffield Financial customer throughout much of the 1990s was predominantly in the outdoor power equipment field. In fact, Snow says at one point Sheffield was financing one out of every three mid-sized commercial lawn mowers sold in the United States. “We felt if a customer is using a lawn mower to make a living, he’s going to make his payments,” he said, “And that worked very well for us.”
In 1997, Snow sold Sheffield Financial to BB&T Corp., which has $143.4 billion in assets. Its bank subsidiaries operate approximately 1,500 financial centers in the Carolinas, Virginia, West Virginia, Kentucky, Georgia, Maryland, Tennessee, Florida, Alabama, Indiana and Washington, D.C.
BB&T Corp. has been unable to avoid the pitfalls that have hit many of the nation’s largest lenders. In fact, the company recently reported on its Web site that its first-quarter net income dropped more than 25 percent compared to the year-ago period.
Snow, however, notes Sheffield Financial has recovered from a difficult 2007 when its percentage of bad debt doubled, although that percentage increased only to 3 percent. That percentage of bad debt has since dropped back down to 1 percent, Snow says.
Snow notes one reason the company has fared well is because it sticks to the industries and product it knows, favoring the higher-priced, higher-quality items that tend to draw a more sophisticated clientele. “We really know our product and we know our customer that buys that product,” he said.

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