A large loan opportunity came to the markets recently; the company was a staple of their community, and the project was a necessity if the company was to survive.
The company approached their bank, Bank A, who was a bit too comfortable with “business as usual” after 50 years as the existing bank. Bank A was a bit hesitant to react favorably. The company was disappointed, and decided to look for alternatives to Bank A. The contacted Bank B.
After learning of Bank B’s addition, Bank A jumped into action; “We can’t lose this customer!” said management. “Get in there and get that deal.” Bank A brought in a new relationship manager to ease tension, and they dove in.
The deal was difficult, and company performance and projections were not as either bank would desire, but, the deal could be done. This was a competitive, regulated industry, with changes occurring daily. But the company was a necessity, they were a large part of the community, their ties to the area were deep, and medium to longer term outlook was promising. Regardless, this project would proceed.
Both banks sat with management many times, toured facilities, digging into significant information with due diligence to identify the key issues and true needs. The task was great, and the Bank A relationship manager was able to level the playing field with the company back to their side.
Internally, however, the story was a bit different. Bank A’s discussions centered on leverage, minimum cash flow needs, stress testing, industry threats, management quality, and other companies that performed better, and timing of the project; all critical to a quality lending decision. But many obvious matters (benefit to the community, the company’s solid reputation, project advantages, trusted relationships, and positive outcomes), were continually downplayed.
Ultimately, Bank A turned the opportunity down. Their dialogue indicated that “This CREDIT (they referred to their customer as a financial term!!) does not fit our risk profile and is not the type of deal we want.”.
Bank B, however, took a different approach. They did not dive in all at once to “steal the deal”. They were, instead, pragmatic and practical. What was their approach?:
- Bank B asked the company to clearly define the project and the company’s expectations.
- Bank B agreed to respond within the next 48 hours as to how they would like to proceed.
- Bank B agreed with the company UP FRONT that they would do business together.
- Bank B internally talked about their own expectations, and developed a proposal that would both meet the company’s needs, and meet the bank’s expectations within a sound risk profile.
- Bank B built their proposal to meet the company’s expectations, and included building risk for the difficult years and the good years, as opposed to avoiding risk. The model fit within the Bank’s own risk profile, and while not ideal, showed the potential for true risk management.
Bank B responded to the company as agreed, with its own expectations and proposal, clearly stating how this would be a RELATIONSHIP, and ultimately won the company over.
RELATIONSHIP is not simply “You are my client. I have the business.” It is defined as the ability to take on both good and bad, to adapt to change, and to be open to ideas. Even if the answer is “No”, it should be supported by a full understanding of both party’s needs, with an open dialogue.
Banks are a solid, very necessary part of our community, and they work hard to develop sound decisions based on very limiting criteria. But there is room to grow, to ask questions, and present new ideas that, “while not ideal”, if developed with expectations and a plan for improvement, can flourish into great relationships.
Mile Marker Business and Consulting Services, LLC has extensive experience in working with banks, both inside and out. If the decision is confusing or misunderstood, or not moving forward, the Mile Marker is a place to stop, and ask for help.
Let’s start a conversation!