Article by Roger Schlueter, MBA
You have just submitted a Commercial Loan request to a bank though the Banks Loan Officer. You forgot to ask when the Officer would have an answer for your Commercial Loan. Thats O.K. you think, he will call when it is approved. You wait a week, maybe two weeks before you call him. You are told that they need a little more time and that the approval will be another week. That’s O.K. you think what’s another week. After another week and a half you call the officer only to find out that he is on vacation or out of the office. You have waited a total of three and one half weeks almost a month and you have no idea when the loan will be approved. This senario is more common that you think. I have had borrowers tell me they waited up to three months only to be turned down on the loan.
What can help is to have all the information that is needed by the loan officer at the first meeting. This will include answers to all of his questions. If you have all of the information needed and all of the questions thought out and answered, in case the loan officer asked about those questions, then you would think they would at least get you an answer in a couple of weeks. Don’t bet on it! The bank can be as subjective as they want on a Small Business Loan as long as they don’t discriminate according to Race. Nationality, Religion, Sex, Marital Status and Age (as long is the person is of age to have the capacity to contract). It seems there is a rule that says that if the Small Business is denied credit and the small business asks the bank why, then the bank has 30 days to respond and has to keep the application for one year. This has nothing to do with the making of a decision – the bank can take as long as it wants to make a decision on the loan.
Most Loan Officers have a Business Loan Quota, each month, quarter or year, to reach. The quota is not an the number of loans but the dollar amount of all loans made. This Loan Amount threshold can be in place to reach Bonuses or to just Keep Their Job. They do almost the same analysis on small and larger loans, so it is not big surprise that they try to concentrate on the large loans which will help them meet their quota. Loans of under $100,000 are almost always put aside to work on other larger loans.
Real Life Example: I have a business buyout by a daughter to buy her fathers business. The purchase price is approximately $140,000 and the father will take back a note for any amount to make the deal work. The only collateral is $80,000 in Equipment. This deal was looked at by three banks initially. One large bank and two small banks. The larger bank denied the loan first but said they might do it if they get $10,000 Cash Down and an Appraiser to verify the equipment value. The other small bank took approximately six weeks to turn the loan down and the third small bank has yet to respond in 2 months and one week. This is with phone calls being made at least twice a week. The banker usually does not return your phone call. The one banker tells us the same thing, “I have to finish writing up this loan this afternoon and will get a second signature needed to approve it in the morning”. The loan officer said this same excuse for at least five times, he must think we are really stupid or he is smoking crack.
You may think the larger bank has said they will approve this loan but the borrower does not have $10,000 cash to put into the deal and an Equipment Appraiser usually costs in upwards of $2,000 or more. This is cost prohibitive in my opinion because the equipment is only worth $80,000. I will try to update this article when I get an answer to the third bank. We have showed this loan to another three banks and we are very hopeful that one will entertain this loan request with an approval. Banks are very careful at this point in time and they are not lending to make money but are lending to, “not lose money”.
Try to nail the bank down to a timetable when presenting a loan to a bank. Try to hold the loan officer and the bank accountable. This is very hard because the bank will remember if you go over the banker head or report them to regulators. You are stuck because you need the bank to lend to you and you cannot complain or report them. The regulators realize this but refuse to enact any real regulations to prevent it. The regulators are in place to keep the bank in line and lending according to the Bank’s Loan Policy, not to help the Small Business Borrower.
Please email me with any questions or comments. My email is roger@rogerschlueter.com My website is schlueterfinancial.com and you can find more info and my contact info at the website.