What Factors Do You Use To Down-Select Your Small Regional Bank Partners?

[Bryan Hancock]

I have pretty much called every known viable bank or credit union in the greater Austin area in the past year and we now have 15 solid lenders that will loan on specs or our rehab projects. This presents an interesting "problem" of needing to keep our relationship active with them or to down-select and bracket them into the most desirable camp and the other camp.

If anyone has experience with this or thoughts on how to categorize them it would be helpful. These are the main items I am thinking of using:

1. Who will loan the most. Believe it or not 85% LTC with traditional lenders is available from a few lenders and as much as 95% LTC is available with what are closer to asset-based lenders

2. Who will offer guidance lines. $500k guidance lines seem to be fashionable currently to start out with

3. Who has the best service and is responsive to emails

4. Rates are currently 4th on my list, but are certainly important. Everyone is within 1-2% though and for short-term money this doesn't matter a lot. Points are more important and most folks want a 1% origination fee; although some will go lower or to 0% for certain scenarios

What else would you want to know? Item 2 kind of ties in with how many loans they'll issue once the first set rolls out. Some folks will loan several to start out with. Many times this seems to be because they're getting less static from regulators or are more liquid at the time of the loan request.

Any guidance or commentary is appreciated. Note that this discussion is separate from equity raises and private lending. This is just about small regional bank financing. This financing is frequently superior to using other kinds for many projects we're working on.

[Bill Gulley]

A guidance line????????
LTC??? = LTV

Seems you found 15 lenders to lend in your area of RE, not that you have a banking relationship with all 15, so they are making the offer so to speak.

Selecting a bank to do business with takes some time as well as investigation.

Understand that all banks will have a "lending area" generally no more than 30miles from a bank location, that's why they spread out in smaller communities to enlarge the service area.

If you'fe going to be doing business west of Austin, I'd say a bank that is close by and not on the east side of Austin. Male sure the bank is willing to lend in the area.

You really don't have to be concerned with a loan size if you ask them who their affiliate lenders are and who they may partner with on a larger loan amount. Banks will have a concentration of loans issue not only by the amount but also with any one borrower exceed ten per cent of their portfolio, I doubt you'll get that big knowing there are some large banks in Austin. So, It's not so much if they are big enough as it is can you swing a larger loan on a participation basis in dealing with a small bank. If they don't have affiliate lenders, the chance of you getting cut off later on as they get loaned up.

Banks are usually known for the types of business they do, small business, real estate development, government banking, or primarily an investment bank, while they may not see them selves as such, they tend to do more business in one area than others.

I suggest you personally visit with the sr. vp. of lending or the president of a small bank, while these mid ans small banks will have a loan committee, that committee is usually swayed entirely by the head guy, it's an opportunity to pass the buck. Knowing what that person like's to see is where you need to be.

The down side of a small bank is that they reach their loan limits quickly and if that one guy doesn't like you for some reason, you're done, so politics and making friends is important. What makes friends with any bank is deposits, the more the better.

You need to build a banking relationshipthat is a two way street, having 6 loans with a bank is not much of a banking relationship with a grand on deposit!

If you are working with investors, open an escrow account and throw investor funds in that account, even if you're paying 2 or 3 % and getting nothing out of the escrow, it can build that relationship, if your account is big enough you begin to have leverage for a loan. Better rate, terms, etc.

IMO, no matter how big you get, you'll do fine having a bank relationship with 3 main banks and one main depository. You should have a mild relationship with maybe 3 more that you can referr clients/buyers to, a secondary market broker is also a good one to know for those that fall through the cracks. You certainly don't need to try and maintain a relationship with 15 banks!

And, I'd suggest you get in with a bank that has a good investment bank dept. as they get to know you, they may "introduce" you to qualified investors and assist you in raising partnership funding.

There's much more toit, IMO but that should get you started...Goodluck!