INSIGHTS FROM A COMMERCIAL BANKER: NAVIGATING BUSINESS LOANS
Hey, what’s going on? It’s Seth here. I just closed on my first-ever commercial loan as a borrower. And before this meeting that I had with my banker, I thought to myself, what better person to explain to the REtipster audience what a commercial banker does?
How do you find good deals? How do you put deals together? What kind of people should and shouldn’t be looking for commercial loans like this? What’s the best and worst part about being a commercial lender? And every time I talk with one of these professionals who is actively working out there in the field, I just know there is a ton of knowledge they have in their heads that I don’t have. And I know they can explain it a whole lot better than I can. So, he agreed to sit down with me and explain the whole thing. Let’s listen in. I hope you enjoy it.
MEET CHELSEA FOSTER, COMMERCIAL BANKER
My name is Chelsea Foster. I’m a market president commercial lender for a commercial bank headquartered in Ithaca, Michigan. We are about a 130-year-old community bank. I have been a commercial banker coming up on 10 years, a little over nine years with a commercial bank. I wouldn’t say there’s any set background that you need to have. I think a business degree would be helpful. If you’re interested in the banking field, I think some finance, if you could find a local community bank that may offer an internship program or something to get exposed early on, I think the CEO of our bank actually started as a bank teller and just worked his way through different roles in the bank. And 20 some years later, he’s the CEO of the bank.
The commercial lending role, I do think some credit analyst experience and basic accounting is pretty important, but I would also say it’s not rocket science. If you can be self-motivated and have some decent people skills, you’ll likely be successful in almost any field. And I think the ins and outs of the intricacies of banking can be learned pretty easily.
VARIETY OF COMMERCIAL DEALS
Types of deals are really a wide array. We have everything from small manufacturers to hotels, restaurants, professional services. So, think of attorneys, medical professionals, psychologists, financial advisors, a lot of service-oriented businesses. We tend to do a lot of deals that have a real estate component where we are financing the real estate. And then there may be other pieces of the pie. As far as equipment financing, some working capital.
It may be a situation where we’re actually financing the purchase of a business that also includes real estate and equipment. So there may be multiple components to the financing, but we also have a lot of just non-owner-occupied real estate investments. So a borrower that finds, say, an office building with multiple tenants, we finance an awful lot of that type of thing. We love to find deals that have that owner-occupied component, though. We just find the owners obviously going to be way more committed to the deal if their business depends on being in that real estate.
SERVING SMALL TO LARGE BORROWERS
As a community bank, I would say there really isn’t a dollar amount that’s too small for us. We work with many small businesses where maybe it’s a small piece of equipment as their only debt. I have loans below $10,000 and my most recent deal was above $5 million. So, I would say a few hundred thousand dollars deal is a decent size deal for us. We do an awful lot in that $750,000 to maybe three and a half million-dollar range is kind of our main wheelhouse, but we’re not limited to that. We just really try to serve the local communities’ banking needs.
BANKING AS A COMMUNITY
Funny you should say that. I actually have had someone asking me for half a billion dollars, and I explained to them that our bank is as a whole valued at just under $600 million at last count. So we couldn’t accommodate that request, but I would say anytime we’re looking at the double-digit millions of dollars, so $10 million plus is getting up there where we might be able to do it, but it better be a really solid deal. Or I may have trouble getting that through my bank board. Working as a lender for several years, you start to understand our bank’s appetite and the flavor of deals that we’re comfortable with. I can often look at a building and see if that’s something that’s up our alley or not, but we always invite people to apply. And we see just a wide variety of businesses, things that you never knew existed. And I think that’s the most interesting part of the job.
We’re definitely considered a small institution. We are way smaller than the national banks that you see out there, the Huntingtons, the Chase. So definitely smaller, but I would say we’re able to accommodate most of the business opportunities that we run across. If you look back 10 to 20 years, there are way fewer institutions. There have been acquisitions after acquisitions and mergers. The big banks have gotten bigger and bigger, and we’ve definitely seen in the markets we operate where that local community banker feel has gone away. It may be that same bank branch in your town, but there may not be the local decision making an attention to the local market that there used to be. So we’ve seen just great opportunities.
Whenever we hear about the next bank merger, we get excited because that means there’s likely to be some turbulence in the market. That can be very traumatic on a small business to lose that relationship that may be built over multiple generations in some cases. So I love being able to come in the door and say I work for a 130-year-old community bank and we’re not going anywhere.
COMMON CHALLENGES IN COMMERCIAL LENDING
A common issue, maybe, some previous credit issues with that borrower on the personal level, if your credit report shows that you haven’t paid your bills, that’s a sign that