Bankers’ Hours column: Banks need a vice president of alternative financing
Through mobile apps and the internet, banks have never been more accessible to customers, or more responsive. Depositors and consumer borrowers can log into their financial institution and never have to stand in line to manage their money, or apply for a loan.
But bankers are still in the rarefied air of the mountaintop looking down when it comes to serving borrowers who don’t meet the standards of 21st century lending, as defined by statute, regulation and the lenders themselves.
In pondering this, I was reminded of part of a lesson in a high school class, way, way back in the last century. In our school there was a social studies teacher who was something of a maverick, at least by mid-20th century standards. To make a point in a lecture, this gentleman recounted a conversation that he’d had with the school’s quite successful football coach:
“I was talking to Karl (the coach) and I said, ‘Coach you’ve had some great teams, but I notice that you just work with the best athletes, the ones that bring it with them. Why is that?’ “
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“He said, ‘Gilbert, it’s nice to work with the ones that bring it with them.’“
The teacher said, “He had me there.”
Banks, like coaches, very much like to work with those that bring it with them, as in income, or liquidity, or some other credit enhancement mechanism, such as strong co-signers. And it makes sense, doesn’t it? You’ll not go broke making loans to rich people. Most pay the money back, and the ones who don’t still have wealth that lawyers can grab.
Bankers will tell you that they’re constrained from making some good loans by restrictive regulation, and they’re absolutely right.
Also, they’ll note that they have a fiduciary responsibility to stockholders, employees and the FDIC to run a tight ship, and they’re spot on again.
But the fact is that there are people out there, business owners and entrepreneurs, who not only deserve money, but who are fairly good borrowers if a loan is properly structured, and there are a lot more that are strong candidates for venture capital investors. We’ve mentioned this before, but it bears repeating: Never forget that Walt Disney, Bill Gates and Steve Jobs couldn’t borrow from a bank when they started out.
Someday, a perceptive banker might figure out that this dichotomy can be harnessed to enhance the bottom line, and build future customer relationships.
What if a bank would create a new position, maybe vice president of alternative financing. This exec would be the hand-off person after the institutional loan officer has offered, with regrets, the supplicant a second cup of coffee.
Our VP/AF would have a stable of private lenders, mortgage brokers and investors to which the nascent entrepreneur can be referred. In fact, the bank can offer an immediate benefit to the borrower in the form of a reduced fee for a loan funded by one of the bank’s private partners. Any private lender or loan broker would be eager to give up revenue in exchange for a bank feeding them business.
Be assured this works. I’ve seen it on a very small scale, but it’s enough of a beta test to show that the borrower who gets funded by a secondary source remembers exactly who engineered the deal. And is very, very grateful. Private lenders don’t take deposits, but banks and thrifts do. So when the guy or gal that didn’t qualify finally does, the entity that helped the most is the one that gets the major cash down the road.
You never know who’ll be a hall-of-famer:
Peyton Manning couldn’t throw the long ball, but it didn’t matter.
John Elway threw too hard. Didn’t matter.
Drew Brees was too short to be an NFL quarterback, and that didn’t matter, either.
And Tom Brady started out seventh on the depth chart at Michigan.
Pat Dalrymple is a western Colorado native and has spent more than 50 years in mortgage lending and banking in the Roaring Fork Valley. He’ll be happy to answer your questions or hear your comments. His e-mail is email@example.com.
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