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BenchMark finalizes results for CBA's 19th Annual Home Equity Lending Study

Jan 03, 2006

Retaining customers through quality referrals to non-traditional lendersBrett Evensonreferrals, underwriting, commercial mortgage loans In the conservative, risk-averse world of commercial mortgage lending, bank loan professionals are often forced to say no to quality customers when loan requests fall outside the bank's lending parameters. Every seasoned bank loan officer can regale you with a myriad of stories about customers who, despite having significant investment or deposit accounts at their bank, failed to qualify for a commercial mortgage. The reality is that all bank loan officers have experienced the frustration of disappointing a customer or potential customer because of: - Inadequate debt coverage ratio; - Non-qualifying property type; - A loan amount that's too small; - Borrower lending limits; - Inability to document income; - A large cash-out refinance request; - A property outside of the geographic footprint; and - Low credit scores. While each institution's "box" may be quite different, the universal fact remains that the rigorous underwriting standards and conservative credit culture of the banking industry results in turning away significant quantities of commercial mortgage loan requests. In fact, we estimate that banks reject well over 50 percent of all requests for commercial real estate loans, and that figure does not include those initially screened out by a loan officer before even taking an application. The problem for bank relationship managers is that by saying no to a customer, they risk losing that customer to a competing bank. Commercial borrowers are then likely to move their deposits and other business lines to the financial institution that can serve their borrowing needs. Forced to grow business and retain existing customers, bank loan professionals need better options for clients that don't meet the bank's lending criteria. So what can a bank loan officer do to better serve the borrowing needs of important clients? The solution lies in having a reliable back-up option for referring loan turndowns - one that will not compete for your deposits or other banking business. Instead of simply disappointing a customer with a rejection when their loan request cannot be accommodated, a loan officer should provide their customer with an alternative solution. Ideally, this would take the form of a seamless referral in which the client feels as though they aren't being rejected at all, but rather introduced to a lending partner that will help them with their loan. By taking charge and pointing a customer in the right direction to solve their commercial mortgage needs, the loan officer will earn valuable relationship capital with their customer. Not surprisingly, the success of this strategy is reliant upon the referral partner that a loan officer chooses. When evaluating which alternative lenders offer the most, bankers should be quite careful to assess the following criteria: 1. The partner should be a reliable and reputable lender. When a banker refers a client, they must have the piece of mind to know that their client will be well taken care of. The treatment the client receives by the lending partner reflects back on the referring loan officer. The lender should have loan terms and features that appeal to the customer, along with a high level of customer service. Also, the lender should be able to report back to the referring loan officer on the status of customer referrals to keep the loan officer in the loop. 2. The partner should have a broad lending "box." Loan officers should have a high degree of confidence that their customer will be approved by their partner, regardless of the reason for the initial decline. The ideal companies can offer attractive financing regardless of property type, credit and cash flow, and can provide both investor and owner solutions. 3. The partner should not be a competitor for deposits, investment accounts or other business. Simply put, the partner should not be a competing bank. Seek out a firm that specializes in commercial mortgage lending only. Finding a lending partner that meets these criteria will provide bank loan professionals with a way to say yes to customer loan requests that do not qualify at their bank. The best strategy is for loan officers to refer loans that do not meet their bank's guidelines to a non-traditional lender. This allows banks to further solidify the relationship with their client and prevent the loss of business to a competitor. Brett Evenson is managing director of Commercial Direct, a division of Bayview Financial Small Business Funding LLC. He may be reached at (877) 265-9895 or e-mail [email protected].
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