It has been all over the news how President Obama invited the big bankers to the White House this week to encourage them to do their part to stimulate job creation and economic growth by lending more to business; small business in particular. In essence, these bankers got invited to the “wood shed.”
The million dollar question remains . . . will it make any difference?
On the one hand you have the POTUS telling the bankers… open up your coffers… lend more… and then on the other hand, you have the regulators breathing down the bankers necks telling them to tighten up their lending standards to improve their balance sheets. Hmmmm… now that’s a conundrum.
If you are a banker, especially a big one, you are in a tough spot. Trust me though… I don’t have much sympathy for them.
Recent statistics have indicated that lending overall has decreased throughout 2009, with 75% of that decrease attributable to big banks not lending.
Here is another interesting tidbit. I was talking to my business partner Nadir, in Bismark, North Dakota. Unemployment is less than 2%, most homes sell in less than 60 days, and prices are stable if not rising. In other words, they wouldn’t know a recession at this time if it kicked them in the pants!
Nadir indicated that the only banks operating in Bismark are large regional banks out of Minneapolis, and they have essentially shut down new home development, choking off the new home market, causing more then significant pain for many builders.
One has to wonder are there any lenders extending credit anymore?
Thankfully the answer is yes.
I found this article in the the Bangor Maine Daily News which, provides the needed clue to who is lending in today’s risk averse environment. The answer is simple… small local banks!
If you contrast this article to the fact that there are no local banks in Bismark, just the large regionals, is it any wonder new home construction is tanking out there?
Now for the rant… of sorts!
If you have been paying attention to anything I have been writing in the past 3 months you know that I am rabid about the notion that real estate investors must master the skill of establishing relationships with small local lenders. You know the ones . . . they usually have Savings and Loan or Community Bank somewhere in their name.
And here it the not so big secret: They need us as much as we need them!
While I acknowledge that in today’s lending environment there are fewer and fewer banks of any size who are lending, especially to real estate investors, the fact remains that they are still out there and they need to lend money or they will go out of business.
So, they might as well lend it to you. Right?!
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How to Find Lenders Willing to Lend
The process of finding willing lenders for the most part is simple. I will enumerate a few of the more important steps.
- Your number one goal in this entire process is to convince the bank that you and your business plan pose little risk.
- Never try to create a banking relationship you are desperate (see number 1 above for clarification).
- Most investors approach banks with their hat in their hands. This is the WRONG approach. Look, these guys and gals put their pants and skirts on the same you and I do (only I don’t wear a skirt)… and how to you think they get paid? At least partially by making loans.
- Remember that most investors want to take the easiest path and when dealing with banks; taking the easiest path won’t cut it. Spend some time creating a business presentation, practice giving it to your wife, significant other or cat/dog, and then go find one or more willing bankers and tell them your story.
- Following step 4 above will put you in the top 95% of all investors these bankers talk to… thereby greatly supporting the advice in step 1 above.
Don’t let our current lending environment stop your from building your business. Follow steps 1 – 5, go out and kiss a few frogs and create the relationship you need to fund your empire.