If you’ve been hoping banks will loosen their loan purse strings, Mike Moebs says 2013 may be your year. But, Moebs adds, bankers will make up for continuing low loan rates with higher fees and compensating balances, and risk will be a big part of the loan equation.
“Don’t be misguided by what appear to be really great rates,” Moebs said. “Banks are looking at yield. 2013 will be the year of commercial loan yield.”
Moebs is an economist and CEO of Moebs $ervices Inc., a Lake Bluff economic research firm. More to the point, he is a longtime consultant to banks and credit unions. Moebs’ generally more positive view of the small business loan arena is indeed a positive.
There are, of course, alternatives to bank financing: Accion Chicago, which makes microloans — $50,000 max; private investors, including angel networks; crowdfunding, a popular Internet option; the SBA’s real estate focused 504 loan program, a partnership with banks; and credit unions.
In fact, Moebs suggests that business owners “start thinking about credit unions” as a loan source.
“If your spouse works for Abbott, go to the Abbott credit union,” he says. “ Or go to a community credit union” which generally has a broader lending geography.
Many small businesses, however, go first to their bank.
Looking for a $1 million loan? Expect a fee of $15,000 — not points, which are typical in home mortgage lending but actual cash, Moebs says. Also expect to keep a compensating balance at the bank — in Moebs’ example “$100,000 with (the bank) at all times in a checking account.”
For business borrowers, “It’s buyer beware,” Moebs says. “There are no consumer-like protections.
“You’re going to pay the banker,” Moebs says. “You’ll pay in fees, balances and rates, but you’ll pay.”
The fee will be based in great part on risk. “Get your financials in impeccable order,” Moebs says. If that’s not the case on December 31, hold off on your loan query. Get things right in the first quarter, then approach your banker, he says.
There’s a formula for all this, Moebs says: Fees plus rate plus balances equal price times risk, which equals yield. Fees and balances are negotiable, Moebs says. But “read the fine print,” he suggests. “See how the banker calculates yield.”
Since you’ll likely be leaving dollars in a compensating checking account balance, “Demand a full account analysis every month,” Moebs says. The analysis “will determine how much you must leave at the bank.”
If you don’t typically get your CPA involved in loan analysis, 2013 might be the year to do so. “Your CPA should be a key adviser,” Moebs says. Most have “knowledge of the banking situation — and may suggest you go to XYZ bank rather than accept a loan proposal from ABC.”
Ÿ Jim Kendall welcomes comments at JKendall@121MarketingResources.com
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