Last month we talked about increasing your chances in
Internal and market factors
Each bank has unique internal and market factors that govern how aggressive they will be in lending to small and medium sized corporations.
Some of these factors are:
# 1. Current state of their loan portfolio. Banks with higher than average non-performing loans and loan loss provisions will obviously not be in a loan expansion mode.
# 2. The bank’s view of the local, regional and national economic health and growth. Banks who view any one of these as in recession or susceptible to recession will be either less aggressive in commercial lending or want very stringent terms. The same applies to various industries. Banks may have a positive view of the economy but not of a particular industry. Make sure your industry is not negatively viewed.
# 3. Emphasis on lending opportunities other than commercial lending. Some banks concentrate, for example, on consumer lending, mortgage lending or lending to large Fortune 1,000 companies. They may only offer commercial lending to small and medium sized companies as an addendum to their consumer lending programs and thus will not offer a wide array of commercial lending products or products that have attractive terms.
Check out the banks
You can get a good idea of a bank’s commercial lending posture by talking to their senior executives, other clients of the bank, reading their financial reports and checking their risk rating with an established rating agency. After talking to the bank executives and checking them out with companies you know who do business with them. Look at their financial reports, in particular, look at the size of their commercial lending portfolio, both absolutely and in relationship to their overall portfolio. A low percentage of commercial loans to total loans may be an indication they are not aggressive commercial lenders and their non-performing loans and loan write–offs to total loans. A bank’s annual report may also give you Information about future growth plans that are not reflected in their numbers.
Get a ratings report
Lastly, get a ratings report from a reputable firm such as Institutional Risk Analytics. They rate almost every bank in the US. Banks are rated ‘A thru F’. Any bank with a C rating or lower has considerable loan and /or investment portfolio problems.
If you follow these procedures, you should be able to identify banks that will want to do business with you and offer you the best terms available. In our next blog we will discuss a bank’s credit criteria for both lines of credit and for term loans.
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