I spend more time listening to independent business owners than to bankers. That’s the point of the Descant platform after all. Listen and help them share their own story to show they are worthy of credit and trust.
What jumps out across the board is indie business prefers community banks. Why? They experience relationship banking at its best. Some examples:
“My banker understands me.”
“My banker is my board of directors and confidant.”
“Some days my banker is more important to me than my wife.” Okay, I do NOT recommend that as a good way to prioritize your marriage vs your bank relationships.
The point is relationships matter and there is a lot of quantified research to back up our anecdotal evidence.
It costs the average community bank approximately $14k to book a new commercial loan, but only about $2k to modify or amend an existing commercial loan.
Stated another way, if you retain one existing loan, and concurrently book another identical loan with a new client, the existing loan has a 5.1% higher return on equity than the new loan.
Take a look at Chris’s list of how banks should think about relationships with borrowers and you can readily see that it’s good for the business too.
We identify profitable relationships and then identify any of the following variables that increase the likelihood of that customer being poached by competitors:
- Any expression of dissatisfaction with the bank, banker, terms or pricing of the existing loan
- Loans maturing within the next 2-3 years
- Borrowers that are paying above-market fixed rates or credit spread
- Borrowers with no, or weak, prepayment penalties
- Term loans with variable rate structures
- Borrowers with low switching costs (no treasury management, wealth management or investment management services)
- Customers with high probability of defection triggered by low product usage, lack of primary relationship, etc.
- Customer is not in a loan structure that best matches their asset-liability position
There you have it. High-trust small business/small bank relationships are good for the business owner and a better deal for the banker. Thanks Chris for another great insight.