Which banks are in the market for which loans?
In many ways it is a tale no less epic than that of the tin man, the cowardly lion, the scarecrow and Dorothy in their kaleidoscopic journey through Oz only to discover that the great and powerful Oz was merely a traveling roadshow fakir.
Like Dorothy, my goal is to merely pull back the curtain and share with you how some banks are more aggressive than others in the loan marketplace at any given time and how this can influence a borrower’s decision making.
You want to get a loan. (For purposes of this article, it doesn’t matter if it is for a home loan or business). You gather your information and prepare a package for the lender.
STOP!
How do you know which lender to go to?
The most salient ways we find a lender are:
• My neighbor, Henrietta, swears by this guy.
• My family has always used…
• Bob and I go to the same country club.
• I saw an ad in the paper.
• I got a flier in the mail.
• I went to the bank where I have a checking account.
• My accountant told me who to use.
Does any of this sound familiar?
While some of these sound acceptable, none of these tell you which bank is in which market place for the exact type of loan at any given time.
That’s because it is constantly changing.
What do I mean?
Each bank has their own portfolio of loans: some commercial, some residential, some equipment, some lines of credit…well, you get the idea. As you can imagine, this portfolio is constantly changing: each year, each month, each day, loans are maturing, being refinanced, and, unfortunately, being foreclosed upon. Thus, a bank’s internal loan portfolio is constantly changing.
As these loans come due at different times, a bank’s portfolio can, invariably, come out of balance, i.e. a bank will find itself heavy in commercial real estate and lacking in residential as loans mature.
When a bank’s portfolio is out of balance, internal alarms go off at a bank. When alarms go off, there generally comes down a directive from above to fill the bucket of loans that is currently lacking (or out of balance) in the bank’s loan portfolio. The bank generally gets super aggressive (which benefits borrowers) because the bank essentially goes into a marketplace and undercuts every other bank in that marketplace in order to fill their bucket and rebalance their portfolio.
Make sense?
The problem is that the borrower would generally never know. There are occasions when a bank will take out ads or commercials to tout their aggressive pricing, but generally they don’t spend the money to do that; they figure their agents in the field or the people coming into the bank will see and the word will spread.
It is one of the great mysteries of the loan world, whether business or residential.
So, how would you, the borrower, ever be let behind the curtain to find the most aggressive bank, for your type of loan, in your geographic area?
Find your own Dorothy, and let them pull back the curtain for you.
This article also appears on The Huffington Post.