Category Archives: AdviceOnLoan
As a new young banker in the 1980s, it was drilled into me how important networking was to developing my business. Chamber of Commerce, Jaycees, Young Museum League, Homebuilders Association…. the list goes on forever.
Yet looking back some years later, I recognized that most of my business came from people who weren’t standing around making conversation over some warm beer. Rather it came from someone who’d been working during those hours growing a business, getting a building under contract or negotiating for a better deal.
So how are you finding new clients?
Lendio, recently announced today strong sales and users for its SaaS (Software-as-a-Service) solution, Lendio Pipeline.
Launched into beta in October 2013, Lendio Pipeline was designed to help business loan officers and departments improve their efficiency to build successful long-term relationships with small business borrowers and close more business.
“Lendio is proving to be a very useful tool to help our loan officers keep track of all their interactions with our small business loan customers,” said Jarod Phillips, Director of Market Development at Bank of Idaho. “We haven’t been using Lendio very long, but our loan officers like it and feel like it will help them further develop their portfolio of small business loans. It’s nice to see our lenders ditching the legal pads.”
Innovation is changing many aspects of capital distribution and the business lenders will be greatly impacted by those changes.
Lendio is among a few innovators that are providing new inroads to finding clients that need capital – those too busy to stand around sipping on those warm beers.
According to the Federal Reserve of New York, superstorm Sandy caused financial losses for about a third of the small businesses in the areas it hit. The New York Fed surveyed 950 companies around the greater metropolitan New York/New Jersey area.
Half of the businesses covered their storm-related losses with personal resources, the survey found. And about 40 percent increased their debt to deal with losses. Twenty-two percent of the companies reporting losses said they lost more than $100,000.
As a business lender, you can quickly visualize other impacts, such as a displaced client base (like Hurricane Katrina), washed out roads (like Missouri floods), devastated suppliers and a scarred business environment. Couple those conditions with past due invoices, unpaid receivables and crippled credit scores.
Bankers put some time into planning for their own disaster survival but I wonder if small business lenders shouldn’t give some thought to how we would respond to our clients if our shared market were waylaid with such an event?
Would you retreat to the same old defenses like “your credit score is below our minimum,” or my favorite, “why is that my problem?”
Or would you rise to the occasion and turn disaster into a business growth opportunity for both your bank and your client by finding clever ways to navigate around barriers and provide vital capital when and where it’s needed most?
Easier to think about that now on a sunny day, right?
Finding new borrowers is a challenge in the day-to-day combat to work through loan applications and get deals funded. With everyone deluged with too many emails and snail mail being too expensive, finding more reliable and cost effective ways to develop a steady list of prospects is difficult.
“Business Lender Sales” is my occasional column to offer ideas, strategies and best practices to find new clients to keep your business pipeline full.
When the opportunity or necessity to network presents itself, do you handle it well, or is it a big, fat failure? In-person networking – chamber gatherings, public events, trade associations, etc. — are a great way to meet and mingle with potential clients, peers and mentors. If you’ve been in banking for at least 2-3 years, this drill should be familiar, but if you aren’t achieving any results, here are five mistakes to avoid that may be spoiling your efforts.
Being overly aggressive. Trying to initiate a relationship with the mannerisms of a used car salesman will immediately turn off everyone around you. You want to wind up known, but not for being pushy or annoying. Rather try asking questions about what other people do rather than talking only about yourself. Listen to their answers instead of waiting for your turn to talk. And don’t worry, they’ll get around to asking about you soon enough.
Focusing only on best contacts. There are often people in the room that everyone wants to talk to – the event speaker, CEO of a large company or a well-known, successful entrepreneur. But there’s likely others worth talking with as well. Don’t follow the crowd already rushing to the big names but rather circulate and find other people who also have useful information and are worth meeting.
Trying too hard to impress. Some people overcompensate for their discomfort meeting strangers by representing themselves to be more important than they really are. It’s tempting to inflate your verbal resume but chances are people will find out the truth eventually, making you look foolish. Be yourself. You’ll gain more respect and make genuine connections.
Staying quiet. It can be overwhelming to be surrounded by a room full of people you don’t know. But don’t let that keep you from talking to people. Start slowly by walking up to someone else standing alone and make an innocuous remark like, “it’s a good crowd here tonight,” or something similar to break the ice. The goal is to start a conversation.
You’ll know soon whether the person you approached is interested in talking or not. If not, wrap-up in a friendly tone and move on. Chances are that there are others in the room as uncomfortable as you and will appreciate your approach.
Not being prepared. Eventually, someone will ask you what your business is about. This is your chance to talk about you and reveal why you’re there. Be ready with a brief explanation, have a business card ready to share and be prepared to answer any questions that might come your way.
Show some enthusiasm and go into more detail if the response from your conversation partner is positive and be sure to reciprocate and ask about their business. The best kind of networking is an exchange of information, ideas and resources.
As you get out into more networking activities, your comfort level will increase and these conversations will become natural and easy. Your efforts will be rewarded with more business leads and deal flow.
It’s always easier for business lenders to say ‘no,’ particularly if by saying ‘yes’ means you have to roll up your sleeves and work with a client for several months to get their objectives fully met.
In his weekly column at Forbes.com, Ty Kiisel relates a story about a neighborhood bicycle store to illustrate an often overlooked source of business financing: trade suppliers. We all know there are many sources of funding for various business uses, and for us, it’s all crystal clear which capital source is appropriate for which business purpose.
As clear, we recognize that most business owners don’t make these distinctions as easily. Maybe that’s really part of your job – teaching your client how to find capital in other places than your company. Getting them familiar with different funding streams that supply the funds you can’t will make it easier for them to navigate for money to manage and grow their business.
In that way, they’ll learn why you can’t be a one-stop shop for a building loan, receivable financing and small computer lease all rolled up into one transaction. You’ll still get a deal, it just may be smaller one than originally discussed, and the client winds up with a better balance sheet full of well-structured financing products.
Business lenders sometimes need reminding that were it not for clients, we wouldn’t be in business. All clients can’t be ‘easy-as-pie,’ lest lenders would have lower cost hourly people doing your job. Sometimes what’s in the client’s best interest will mean you work harder than usual for a smaller reward.
But hey, that’s why they pay you the big bucks, right?
“Experience is the best teacher, but the tuition is very expensive.”
Failure (individual or corporate), while usually inconvenient and often expensive, is not always without rewards.
There can be many causes of failure. Typically a failure will offer a company a valuable learning experience, which if properly assessed and acted on, has the potential to contribute long-term value to organizational performance.
These circumstances are especially true in business lending, with its multi-party participation to originate, underwrite, process, close and service loan products.
But according to Amy C. Edmondson, a management professor at Harvard Business School, most organizations miss the realization of learning opportunities by improperly using failure only as a “blame game.”
Organizations have a misconception about failure, according to Edmondson’s article “Strategies for Learning from Failure,” published in April 2011 in the Harvard Business Review. That misconception is rooted in the perception that failure and the high standards of organizational performance cannot co-exist. She argues that this is not the case.
“Not all failures are created equal,” she wrote, “and perfection at all times is an unrealistic and potentially unnerving cloud of expectation for an organization’s culture to function under. Doing so could come at the expense of potential business lessons that certain failures can teach.”
Instead, Edmondson recommends that leaders should interpret failures on a spectrum and assess which are more ‘blameworthy’ and which are healthy for turning into a business education opportunity. Her suggested reasons for failure, from most to least blameworthy, include:
• Deviance: individual chooses to violate a prescribed process.
• Inattention: individual deviates from specifications.
• Lack of ability: individual doesn’t have skills, conditions or training to execute job.
• Process inadequacy: individual adheres to a prescribed but faulty process.
• Task challenge: individual faces a task too difficult to be executed reliably every time.
• Process complexity: process composed of many elements breaks down when encountering novel interactions.
• Uncertainty: lack of clarity about future events causes people to take seemingly reasonable actions, producing undesirable results.
• Hypothesis testing: experiment conducted to prove that idea will succeed fails instead.
• Exploratory testing: experiment conducted to expand knowledge leads to an undesirable result.
Why are you investing the prestige of your office and the popular support from your home state to wage a war of misconstrued facts on the U.S. Small Business Administration?
Are you purposely trying to block access to capital to thousands of Alabama businesses (and beyond) by glibly
misrepresenting the nature of the agency’s loan guaranty program and secondary market apparatus?
These programs are modeled as credit insurance, meaning that loan losses are entirely funded by premiums (called “loan guaranty fees”) paid by the loan recipients and an ongoing fee (actually a “tax”) levied on the participating bank. Taxpayers don’t contribute a dime toward loan losses.
To say otherwise places you in the unfortunate company with other anti-SBA crusaders like the CATO Institute, whose dislike for SBA leads them to purposely misstate reality.
You were recognized by the NFIB as a “Guardian of Small Business” in 2006. It’s curious that now you criticize the private-public partnership structure of SBA and the secondary market that provides liquidity to participating small business-friendly community banks, including dozens in Alabama.
Calling it a “moral hazard” in Bloomberg Businessweek is ironic. Maybe you have a problem with capitalism on Main Street?
You voted in favor of the Export-Import Reauthorization Act of 2012 for $140 billion, even though about 80 percent of the appropriation benefits Fortune 500 companies Boeing and General Electric.
You voted for ethanol subsidies in 2005, 2007 and 2013, which costs taxpayers over $7 billion annually and benefits other Fortune 500 companies like Archer Daniels Midland, Monsanto, Shell Oil and BP.
Yet now you grandstand over the paltry SBA, whose 2015 budget request actually went down to less than 3/4 of $1 billion, and whose tens of thousand of financial beneficiaries actually pay their own way.
Perhaps you just need a better coach to explain the SBA to you, Senator. As a native of Alabama, I’d be glad to do that. Call me when you’re ready.
Last week the three federal bank regulators approved a simple rule that could do more to rein in Wall Street banks than most other parts of a sweeping overhaul that has descended on the biggest banks since the financial crisis.
The rule increases to 5 percent, from roughly 3 percent, a threshold called the leverage ratio, which measures the amount of capital that a bank holds against its assets. The requirement — more stringent than that for Wall Street’s rivals in Europe and Asia — could force the eight biggest banks in the United States to find as much as an additional $68 billion to put their operations on firmer financial footing, according to regulators’ estimates.
Under the rule, banks with over $700 billion in assets will have to raise their capital, measured by the leverage ratio, to 5 percent of their overall assets. The ratio will have to be 6 percent at the banks’ federally insured banking subsidiaries, where many of their riskiest activities are. These new rules are more stringent to the risk-based asset procedures that are more prone to manipulation.
What do these changes mean for business lenders? Probably a more stable economy and improved confidence in banking. Paring back the risk poised by the too-big-to-fail banks is a positive development, albeit that these changes are not effective until 2018.
It’s April and as if programmed by the calendar, the CATO Institute offered its annual diatribe about the U.S. Small Business Administration last week. During this period last year I wrote a column in the Coleman Report about the inflammatory remarks about the SBA by CATO Institute’s Veronique de Rugy … well she’s back.
Some business lenders will recognize the CATO Institute as a libertarian think tank founded in 1974 originally as the Charles Koch Foundation, whose CEO is former BB&T Chairman John Allison. Dr. de Rugy is an adjunct scholar at the institute.
This year, Ms. de Rugy’s narrative in the National Review follows Senator Jeff Sessions (R-AL), whose recent query to the SBA demanded an explanation as the “real cost” of the SBA. It seems that the Senator was following de Rugy’s perennial focus on a narrow list of franchise companies that have suffered extraordinarily high default rates.
Session’s demands to be told what “the real rate of default” is for the 7(a) program and whether certain franchise brands have been excluded from financing eligibility. Once again, Dr. de Rugy repeats portions of her misguided assertions about SBA, which are based on false premises that mislead her conclusions. Repeatedly claiming that SBA guaranteed loan losses impact taxpayers reflects either a stunning lack of program understanding by the distinguished policy researcher or a calloused disregard for facts.
The 7(a) loan guarantee program is by definition, credit insurance. Taxpayers stopped subsidizing this insurance in 2004 (except for temporary budget grants during 2010-2012). Participating borrowers pay a premium of up to 3.75% of their loan amount and lenders contribute a share of their earnings for the life of the loan to cover loan losses.
Following the financial crisis, the federal budget included supplemental funding to stabilize SBA’s budget from extraordinary losses and provide additional funding to assist Main Street business owners – who were not responsible for the crash or recession – with access to fee-free SBA loans for a year. The total costs spread over three years? $1.3 billion.
During the crisis, federal government bailouts to Citicorp totaled $476 billion, Bank of America $336 billion and Morgan Stanley $135 billion. All three banks are among about a dozen that continue to poise a threat to our national economy as a “too big to fail” institution, and are effectively subsidized by investor’s belief that they would be bailed out again.
Why wouldn’t CATO take on this much larger problem and government reach into private enterprise? Why did they fight Dodd-Frank reforms tooth and nail, which were intended to lower the economy’s exposure to problem banks?
If the concerns raised about SBA are based on a sincere question about the value of SBA investments, let’s have it with some real data that reviews capital access, job creation and business growth. If it’s merely ideological sniping, as I believe, Dr. de Rugy is starting to get as old as I Love Lucy reruns, and we’ll all be better entertained by changing channels.
Surely you’ve read about the emergence of the virtual currency bitcoin? This innovative alternative to government-issued currency has outlived several similar ideas started over the past few years and is eclipsing a handful of competitors trying to create the next greenback. It’s a Libertarian’s dream of capital outside the control of the state.
Count me among the skeptical and unconvinced.
Bitcoin was developed in 2009 by a reclusive web developer(s) Satoshi Nakamoto as a peer-to-peer payment system. These units, or bitcoins, are ‘mined’ through a competitive claims process with specialized technology, at the rate of 25 bitcoins every ten minutes. In 2017, this rate will be halved to 12.5 coins and halved again every four years until the programmed 21 million units have been released by 2040.
All bitcoin transactions will be recorded in a public register called a ‘blockchain’ and the full history of each coin is tracked into perpetuity, according to their bitcoin address, which does not necessarily include the participant’s identity. You can buy them for cash today in nearly any currency through online exchanges or special ATMs.
This currency has a market value based on its perceived buying power and intentionally are exchanged outside the control of any government. The coins have steadily risen in value since inception to a high of $1,100 each, as the idea and enthusiasm for them have grown among many participants worldwide.
But their value has also shown to have significant volatility as the cottage industry around the Bitcoin has not proven to be as enduring – 45 percent of the exchanges have failed. The most prominent exchange, Mt. Gox, filed bankruptcy in February after disclosing that they could not account for 850,000 bitcoins (valued at $500 million), which were believed stolen due to software flaws.
Bitcoin value proposition seems to be that it’s a cheaper and more private manner to transfer payments than cash, credit cards, bank transfer etc. But that provides a major benefit of money laundering, tax evasion and theft, which present new risks to a global economy.
Libertarians love the notion that Bitcoins have a fixed maximum number, which will forever prevent the monetary expansion (or contraction) they vilify.
An article in the Examiner.com tries to make a case that Bitcoins are good for small business owners by giving them easier, less expensive payment options to sell goods or service internationally, but obviously, that’s not the most dominant barrier – finding buyers is a harder problem to overcome.
Personally, I believe the negative potential from this non-state issued currency far outweighs any potential benefit. This currency, if it lasts, will take 10-20 years to be sufficiently useful. It’s hard to imagine how we could drive a $72 trillion global economy with fractions of only 21 million Bitcoins.
Also suspect as this currency’s ‘store of value’ function, required of any viable medium of exchange. As it exists, it’s a speculative investment whose value is difficult to predict or accurately assert.
For my money, pay me with old fashioned Benjamins, please.
Knowledge is power – Francis Bacon
As a business lender, you run the risk of literally drowning in information. From the minute we awake, turn on any one of several communications devices or get in our car, there are messages streamed at us or unfolding before us that are hard to avoid.
If you work for a bank, you have some extraordinary obligations to safeguard client information. The Bank Secrecy Act (BSA) requires special handling of client data with no unauthorized disclosure about clients to other parties allowed, and even with permission, it should be restricted to only those with a need-to-know basis.
But even after mandated annual training, inadvertent disclosures are frequent as lenders interact with client business among related parties. It might be as simple as sharing business leads or as complicated as what information is disclosed to a third party performing due diligence about the client for the lender.
According to the Georgia State Center for Ethics and Corporate Responsibility, in 2013 there were more than 9 million ID thefts in the U.S., 77 million names with confidential information compromised, 90% of business websites were hacked and more than 1/3 of all companies suffered the theft of intellectual property.
Failure to handle applicant/client information with care can have significant costs, short term and long term to both the client and the lender. Think twice about sharing – or even mentioning – client data or identities when not working directly on client matters.