4 Tips for Protecting Your Lending Portfolio

Author: Phil Pence, Field Exam Manager

As you know, finding new borrowers for your asset based lending institution can be a very time-consuming and expensive venture. As a rule of thumb, the costs of wooing new customers can be six to seven times more than the costs of retaining existing ones, according to marketing firm Flowtown.

With today’s competitive lending market, your bank risks losing borrowers to more assertive lenders who promise higher credit lines, lower interest rates, and faster closing dates. And as you know, high customer turnover can make you look bad to senior bank executives. So, how can you protect your portfolio? Here are some tips.

TIP 1: Approach potential borrowers first

You simply can’t wait for customers to come to you about refinancing options or more borrowing opportunities. After all, interest rates are at all-time lows, and there’s ample credit supply for customers who sport strong credit scores. If you don’t act quickly, proactive borrowers might seek greener pastures.

You can’t let a competitor beat you to the punch. So make sure you review your customers’ financial statements. Go for those with strong credit, high growth and high interest rates. These will be your best prospects for refinancing or add-ons. A borrower might not even look into what your competitors are offering — so long as you contact them first, make a fair offer and maintain a long-term relationship.

TIP 2: Make sure you’re responsive and approachable

Touch base with your customers on a regular basis. Consider visiting their businesses and take them out to lunch or for coffee. Many prospects will be happy to give you a tour of their facilities. Do it. And above all, make sure you return their calls and process paperwork promptly. The top frustrations that borrowers experience when refinancing or applying for a credit line increase is the amount of time it takes for lenders to simply process the paperwork.

In fact, one borrower actually switched banks because his application with its existing lender was delayed for months over a missing 2011 tax return. A quick phone call might have remedied the omission and possibly retained the customer. But instead, the application just sat in a junior lender’s inbox — and a rival bank got the borrower’s business.

Don’t be afraid to seek feedback from your customers. Make it a point to talk to every decision maker in the business. You might find that the CFO is your best contact rather than the owner. Finally, learn what they like and dislike about your bank via written or phone surveys.

TIP 3: Offer to become a referral source

ABLAs the old saying goes, it’s not what you know but whom you know that counts in business. The best way for a professional services provider to gain customer loyalty is to become a referral source for value-added services. Work to become the go-to person in your business community. Encourage borrowers to come to you for accounting, legal or even advertising referrals. And make sure you forward borrowers any relevant e-mails or trade journal articles.

Networking can turn lenders from pesky outsiders to members of the customer’s “team.” This will help keep you in the loop when they face key changes. Plus, it will help you become irreplaceable. You might very well find that happy, loyal borrowers will be more likely to return the favor and refer some business back to you.

TIP 4: Make ’em happy

The best way to make borrowers happy is to avoid treating new and old applicants in the same manner. After all, a long-standing business relationship and a handshake should be something special in today’s business world.

Bottom line? If a client has a strong credit score and proven track record of timely debt service, make sure you streamline the refinance and application processes as much as possible.

If you have any questions about retaining borrowers or any other asset based lending issue, give us a call at 716.847.2651, or you may contact us here.