The concept of lending and borrowing money must be as old as civilization itself. And, in our modern time, I can’t imagine there was ever another time in history when it was so easy to gain access to credit. Not only do consumers have a wide array of banks and credit unions to choose from, many companies will now finance their own products they manufacture, or retail centers are willing to finance the products they sell. In fact, it has become so easy, that we need credit counseling and other services to help educate people not to abuse this easy access to credit!
This same world of ample credit opportunities applies to business owners too. The field of banking was already a mature business, but the deregulation of interstate banking has led to strong banking competition in every market. So what sets your institution apart when a business borrower considers your institution, especially when so many offer the same thing? Why should a business owner come to you for a loan, and not another financial institution in town? If you cannot readily answer this question, you may have a problem.
I recently had a business owner thank me for helping finance his project. He said he likes working with my company, because we both understand the industry, and we helped him take advantage of a federal program that would save him millions. He then noted that no other banker he worked with ever mentioned this program. It is my personal belief that the other bankers probably had no idea the program existed!
This is an issue I’ve run into constantly throughout my finance career, and it is still an issue I deal with weekly. There are several programs that exist that can help borrowers save money or enhance their credit strength, but lenders are not making use of them. Part of it is ignorance, which is unfortunate. To maintain your competitive edge as a lender, you should know about these programs and educate your borrowers about them.
Some lenders know about these programs, but refuse to use them. Why? Often, it is because they have never used them, and that is the way it has always been done around their shop! Some don’t make use of them because they label these programs “exotic”. Anything exotic is considered scary, if not foolish, and they mock the people that make use of those programs. All the while, they are probably losing clients to a lender down the road who is willing to be innovative and adopt these programs!
Dismissing the great benefits of things like Farmer Mac, tax credit equity and state economic development loans is like complaining about people using the internet or cell phones to do business; you can complain all you want, but the smart people learn how to use them to remain competitive.
In an industry as mature as banking, your loan will not be all that different than your competitors’ loans, so you need to set yourself apart. You, as the lender, need to add value. Treating your borrower like every other banker in town is giving him the same indistinguishable service. Helping your borrower understand there are innovative lending programs out there and multiple ways to get the deal done, you become more relevant than your peers, and it helps you win by becoming an expert who can adapt.