“I have been working with my bank for decades… they know me there”. We hear this several times everyday. My response back is “Are they treating you, a long time loyal customer, as well as I am getting other lenders to treat perfect strangers? Let’s have a look.”
Very often, years of loyalty are taken for granted, and the client is looked at as a sure thing, or that the effort of finding a new lender is just too much. Last week, we put this to the test with a new client, who was very open-minded. He gave me permission to write about this here.
We made a bet, he would get his bank to quote the loan, and we would get one single quote. We would exchange the term sheets over lunch, with the loser picking up the tab. We got the deal on Tuesday afternoon and met for lunch on Thursday (note his bank had a big head-start).
Now it is Tuesday morning of the following week, and the loan is in process with our lender. And lunch was delicious!
But that is not the lesson here. The quotes were not even close. We won on leverage, rate, term, amortization, interest only, prepayment penalty, and personal guarantee.
When the client called his lender to tell him what our term sheet said (during dessert), the lender said that it sounds like a life company deal, and that they don’t compete against life companies. When he was told that the loan was from a local bank, and which one it was, he said “we don’t compete against them either.”
So, you have a local lender that doesn’t compete against other local lenders that lend on the same property type, size, location, and borrower profile… I would be looking for new employment if I were him (I hope that he is not reading this… if so, nothing personal!). What is their niche? How do they survive?
I called this lender after (with client permission), to find what their sweet spot is. The answer, low leverage, high quality, short amortization, with clients that don’t need the money… I told him “I met that guy once, but he doesn’t live in Florida anymore.” (he and his unicorn are doing deals back in Fantasy land). The fact is, their primary focus is now SBA loans, which they never mentioned to their long time loyal borrower. Investment real estate is no longer their sweet spot.
We will close this loan in about 7 weeks. We will have a new client, who has a new bank relationship with new opportunities and lots of potential.
The lesson learned here, is that there is a wide range of possibilities with banks. Commercial mortgage rates can differ by over 1.25% from lender to lender. We have seen prepayment penalties from 0% for some to 5,4,3,2,1 structures to even yield maintenance. Personal guarantee structures that are also all over the place, as well as differing amortization schedules, extension options, assumability constraints.
This is an inefficient market: Lenders in the same area, looking at the same product, often have results that have nothing in common.
This is our opportunity to shine for our clients, and frankly is why Banyan Commercial Capital is in business. We spend countless hours on the phone and in lenders offices everyday. These personal relationships enable superior results. The ability to ‘call in a favor’ based on volume directly and positively impacts our clients. For us, this inefficient market has allowed us to dazzle clients with terms that they did not know were possible. Banyan will navigate the market and provide the client with options that best allow our clients to optimize their investment.