Commercial Banking Loans….Relationship or Numbers?
In many areas of our life such as business and sports there is an almost fanatical obsession with using metrics, KPI’s, analytics and spread sheets to issue proposals and to evaluate and monitor individual and company performances. Numbers… Numbers…. Numbers…. Are we forgetting about human face to face connections and interpersonal dynamics?
My consulting business is very simple: I determine my business client’s needs, I determine what type of financing is needed to satisfy that need, I document that need in a business plan and then I find the right bank/banker who is willing to provide that type of financing.
Recently I completed a client assignment that drove home for me a point that I always suspected (maybe you all know as well), that for my target market, (CEO’s ages 40-60) their desire to purchase banking services, (loans etc.) is more about the people/relationship, (banker) than the numbers, (terms & conditions). Don’t get me wrong, numbers are always important but not to the extent that I once believed.
Back to my happy client example. This company was a small manufacturer that was growing rapidly and was an innovator in their industry with a disruptive business model. Like many CEOs today, they lost their long time bank/banker when their bank was sold. When the bank was sold their favorite banker went to work for another bank. The acquiring bank assigned a new relationship manager for my client. The new bank and the RM provided average service and they did not have a full grasp of my client’s business model. My client CEO did not get the “warm fuzzies” with his new RM.
They wanted to follow their former banker but his new bank would not approve the deal and that’s when they hired me. They needed to establish a new banking relationship. I went to work. I implemented my standard program. Fortunate for me, my client was a very strong company which many commercial banks would like to have as a new customer.
After two months, I was able to procure letters of interest from four separate bankers each outlining general loan and terms such as rate, fee and collateral that were all very attractive. Despite the very attractive proposals the CEO indicated to me that it didn’t feel the “human connection” he was seeking with each of the new banker candidates.
An interesting development then occurred. My client’s former banker called them and asked us to resubmit their original loan request and he stated that he felt confident he could now get their deal done.
Their former banker quickly issued a proposal and my client after much deliberation decided to take his deal and declined the four other offers he received.
Here is the moral of this article: The former bankers deal was a good offer but it wasn’t the best offer compared to the four others in terms of the specific numbers.
I asked my client why he decided to take his former banker’s deal. “We like him, he’s personable, he understands our business, he cares about is, we trust him, he communicates well and we have confidence in him.”
Can you put these purchasing criteria on a spread sheet? Can you monetize them?
As for me, armed with this intel, when I am seeking loans and lenders for my future clients I put the primary emphasis on the Banker/CEO personality dynamics and all the other terms and conditions secondarily. Lowest rate does not always win in my opinion. I will close this week’s article with the following anonymous quote:
“The bitterness of poor quality remains long after the sweetness of low price is forgotten.”