Marlin Partners with McIntosh Lab

Marlin Business Services Corporation (MRLN - Snapshot Report), a leading provider of equipment financing to small businesses, announced on July 15, 2009 that it has got the opportunity to be a partner of D&M Holdings Inc.’s McIntosh Laboratory. McIntosh Laboratory selected Marlin as its preferred financing source for providing equipment leases to retail customers.

We think this deal will significantly help dealers, retailers, and customers of McIntosh.  The process also allows retailers grow their business during the ongoing market turmoil.  On Marlin’s front, this will increase the company’s average lease transaction. Marlin will benefit from working with a world leader in high-performance home audio and video products and can look at expanding its customer base by cross-selling its other products.

Per the agreement, Marlin will be allowed to provide financing options for McIntosh retail customers to lease in-store demonstration components.  Following a schedule of equal payments, the deal will provide an attractive 90-day deferred financing offer.

Recently, Marlin converted to a bank holding company.  We expect the bank holding nature of the company to lower the cost of funding compared to its peers (California First National Bancorp [CFNB], Electro Rent Corporation [ELRC], Financial Federal Corporation [FIF], GATX Corporation [GMT - Analyst Report], TAL International Group, Inc. [TAL - Snapshot Report] and McGrath RentCorp [MGRC - Snapshot Report]).  However, the company specializes in leasing equipment to small businesses, which are more vulnerable to the economic downturn than large businesses and may significantly curtail their capital spending as the business environment continues to deteriorate.

Therefore, we suspect that the new originations will continue to remain under pressure while the delinquencies will continue to rise over the coming quarters.  As such we maintain our Sell recommendation on the shares.

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