We have two clients currently looking to improve or change their banking relationship. In both cases the reason is twofold: the need for growth capital and the unresponsiveness of their current bank. Neither is based in southern California, where intense banking competition might make the change less challenging. As we guide them to make the best choices for their quite different needs, the idea of this blog post was born. Perhaps you can gain some wisdom from these two short case studies.
Company A is in the business of construction, investing and management of real estate. A mid-sized, profitable, privately owned company, they had a significant drop in construction activity during the COVID surge, and are looking to refinance a couple of real estate loans. If you ignore the universal impact of the surge on businesses everywhere – as their bank apparently did – you would look at their growth curve and say the growth part is missing. “Let’s wait a couple years to see how you rebuild revenues. Then we can talk about real estate financing.” In my view that is not productive for the company or the bank. The company’s job is to rebuild their business by profitably employing as much external capital as possible, consistent with reasonable needs and the ability to service their debt. The bank’s job is to make profitable loans that will be repaid in accordance with their terms. That sounds like a match to me, but apparently it didn’t to their bank. We are introducing them to new bankers who think differently.
Company B is a provider of manufacturing equipment sales and service. They’re a tenth the size of Company A, and coming off a COVID period that saw their investment in territorial growth deliver a couple years of losses, followed by a very strong resurgent 2021 and an even stronger start to 2022. They are looking for an SBA-guaranteed loan to replace their monthly rent with a much smaller mortgage payment, plus the room to continue to expand. Perhaps not as strong a loan candidate, but with over a year of solid profits and a loan that is partially guaranteed by the SBA, this should be worth considering by the bank they’ve been with for nearly a decade. But their banker is trying hard to lower expectations and hint that they’ll not be favorably treated by the loan committee. And as we all know, it’s your assigned banker who will take your story to the loan committee, and if he/she’s not sold, they’ll not likely be sold either. So, we are going to give their current banker enough information to document our story, and see what he does with it. We are at the same time preparing a short list of new bankers to introduce to them. They will get their financing – it’s just a question of old bank or new bank.
What’s the common thread in both these stories? A banker who doesn’t value the years-long relationship with their customer, who doesn’t see what’s happening today and how it differs so much from the past couple years, and is choosing “easy to say no” rather than finding “a way to say yes.” Banks have been burned in the past, and I can understand the conservative leaning that many of them retain as lending policy. The question is how far should that tendency go before a banker is not doing service to the customer or the bank. A question best answered with honesty, solid reporting of financial results, meeting ongoing projections, and recognizing when it’s time to make a change.
We are Your CFO for Rent.
You wouldn’t believe the resources I had to use to get my last mortgage. …the day before it was supposed to close I demanded to speak to the underwriters…..My paperwork was perfect, my credit score was over 775, the appraisal came through at the price and my income to debt ratio was well within the guide lines ….It seemed to me that I was being discriminated against when they couldn’t give me a firm committment….only a carefully worded disclaimer….