Article by Roger Schlueter, MBA
Bank Business Lending, most of us think if one bank will want to loan on a particular business, so will the other banks, after all, they all are looking at the same numbers aren’t they? I have presented one borrower with an extensive bank presentation to four banks and believe it or not, I got one approval and three different turndowns – REALLY?
What is even more confounding is that the banks that turned the loan down, turned it down for different reasons. I’m like you, I thought they went to the same schools and took the same banking classes. I thought that if the business proposal was the same I would get the same sort of answers but low and behold, the reasons for turning the business down were different.
Bank One – Small Bank in St. Louis Area wanted to approve with SBA but decided to lend up to 70% on the Equipment. I thought this was very aggressive lending but was the way to go without SBA which was more costly and time consuming.
Bank Two – Very Large Bank but local to St. Louis Area. This Bank turned the loan down do to not enough Collateral. The bank said it would apply to SBA but wanted the borrower to put in 20% as Equity which the borrower/buyer did not have in cash.
Bank Three – Small Local Bank that would be very close to the borrowers shop. This bank wanted the Seller to Guarantee the loan but the Seller who was the Borrowers father did not want to guarantee the loan because he was already taking back a note for $60,000 to $100,000 of the deal which was 43% and 71% of the loan.
Bank Four – Large Local Bank with high loan losses from the 2008 – 2010 recession. This bank would only do the loan with SBA Guarantee but with the Seller and Borrower being related, they would have to get an appraisal on the business which they thought would be cost prohibitive.
The loan was probably complicated by the fact that the borrower was a female and even though the Borrower had worked in the business all her life, she had no experience as an owner and manager of the facility. The Borrower had good credit and owned a home but the home had little equity over the last three years. The borrower also owned her car with one or two payments left but the cars value was probably approximately $10,000 or less.
You may think, OMG, but this is really an exercise in why when looking at a Business Loan – the borrower needs to have at least four to six banks look at the Borrowers Loan Proposal. The days of having your local bank look at the deal is over. The other reason is that a bank may take from one month to three months to approve or decline a loan. If you take the banks one at a time you may be looking for a loan for up to a year or more.
Summary: Banks are allowed to be very subjective in Business Lending. This is very different from Residential Lending where most, if not all, of the subjectivity is Prohibited by Law. Banks can be subjective in many aspects of your business loan like, Equity, Collateral, Guarantees, and Whether or not, they will work with the Small Business Administration.
Please call or Email me with any questions or comments. Contact info and other information is located on my webpage at www.schlueterfinancial.com or Email me directly at roger@rogerschlueter.com