Hey, what's going on? It’s Seth here.
I just closed on my first ever commercial loan as a borrower.
And before this meeting that I had with my banker, I thought to myself
what better person to explain to the REtipster audience, what a commercial banker does?
How do you find good deals? How do you put deals together?
What kind of people should, and shouldn't be looking for commercial loans like this?
What's the best and worst part about being a commercial lender?
And every time I talk with one of these professionals who is actively working out there in the field,
I just know there is a ton of knowledge they have in their heads that I don't have.
And I know they can explain it a whole lot better than I can.
So, he agreed to sit down with me and explain the whole thing.
So, let's listen in. I hope you enjoy it.
My name is Chelsea Foster. I'm a market president commercial lender for commercial bank.
We're headquartered in Ithaca, Michigan.
We are about 130-year-old community bank.
I have been a commercial banker coming up on 10 years,
a little over nine years with commercial bank.
I wouldn't say there's any set background that you need to have.
I think a business degree would be helpful.
If you're interested in the banking field, I think some finance,
if you could find a local community bank that may offer an internship program or something to get
exposed early on, I think the CEO of our bank actually started as a bank teller
and just worked his way through different roles in the bank.
And 20 some years later, he's the CEO of the bank.
The commercial lending role I do think some credit analyst experience
basic accounting is pretty important, but I would also say it's not rocket science.
If you can be a self-motivated and have some decent people skills,
you'll likely be successful in almost any field.
And I think actually the ins and outs of the intricacies of banking can be learned pretty easily.
Types of deals of really a wide array.
We have everything from small manufacturers
to hotels, restaurants, professional services.
So, think of attorneys, medical professionals,
psychologists, financial advisors,
a lot of service-oriented businesses.
We tend to do a lot of deals that have a real estate component where we are financing the real estate.
And then there may be other pieces of the pie.
As far as equipment financing, some working capital.
It may be a situation where we're actually financing the purchase of a business that also includes
real estate and equipment.
So there may be multiple components to the financing,
but we also have a lot of just non-owner occupied real estate investments.
So a borrower that finds say an office building with multiple tenants,
we finance an awful lot of that type of thing.
We love to find deals that have that owner occupied component though.
We just find the owners obviously going to be way more committed
to the deal if their business depends on being in that real estate.
So as a community bank, I would say there really isn't a dollar amount that's too small for us.
We work with many small businesses where maybe it's a small piece of equipment is their only debt.
I have loans below $10,000 and my most recent deal was above $5 million.
So, I would say a few hundred thousand dollars deal is a decent size deal for us.
We do an awful lot in that $750,000 to maybe three and a half million-dollar range
is kind of our main wheelhouse, but we're not limited to that.
We just really try to serve the local communities, banking needs.
Funny you should say that. I actually have had someone asking me for half a billion dollars
and I explain to them that our bank is as a whole valued at just under $600 million at last count.
So we couldn't accommodate that request, but I would say anytime
we're looking at the double digit millions of dollars, so $10 million plus is getting,
getting up there where we might be able to do it, but it better be a really solid deal.
Or I may have trouble getting that through my bank board.
Working as a lender for several years, you start to understand our bank's appetite
and the flavor of deals that we're comfortable with.
I can often look at a building and see if that's something that's up our alley or not,
but we always invite people to apply.
And we see just a wide variety of businesses, things that you never knew existed.
And I think that's the most interesting part of the job.
We're definitely considered a small institution.
We are way smaller than the national banks that you see out there.
The Huntingtons, the Chase, so definitely smaller, but I would say we're able
to accommodate most of the business opportunities that we run across. I mean, if you look back
10 to 20 years, there are way fewer institutions.
There have been acquisitions after acquisitions and mergers
The big banks have gotten bigger and bigger, and we've definitely seen
in the markets we operate where that local community banker feel has gone away.
It may be that same bank branch in your town, but there may not be the local decision making
an attention to the local market that there used to be.
So we've seen just great opportunities.
whenever we hear about the next bank merger, we get excited because that means
there's likely to be some turbulence in the market.
That can be very traumatic on a small business to lose
that relationship that may be built over multiple generations in some cases.
So I love being able to come in the door and say I work for 130 year old community bank
and we're not going anywhere.
A common issue, maybe, some previous credit issues with that borrower on the personal level,
if your credit report shows that you haven't paid your bills,
that's a sign that you may not pay your bills in future.
So there are reasons for that sometimes that we can,
we can overcome and understand.
Sometimes there's a real estate purchase, typically of an existing
building where maybe the upkeep hasn't been where it needs to be.
And if that borrower's coming into it undercapitalized,
we don't want to get into a situation where we have
somebody get into something that they just can't handle if or when the roof starts leaking,
we want to make sure we're setting the borrower up for success.
And ultimately that sets us up for success.
So sometimes it's cashflow concerns.
We try to be creative and
work with people to get over the hump and see the future.
I would say self-motivation.
You'll inevitably have those nos.
Maybe you have to say no to a deal, or maybe you really feel you've got something good
and it doesn't make it through loan committee or bank board.
Those don't happen super often with us, because we're so small.
We try to have those conversations early on with all the players, but that's true of almost
any sales-oriented position.
You got to stay motivated. Keep looking for the next opportunity,
have a genuine interest in your customer.
A lot of our business is repeat business from existing clients.
So, you need to take an interest and stay in touch with those clients.
Don't close a deal and move on and just look for new stuff, keep in touch with the existing folks.
So, I think just having that open mind, but also having some discipline coming in as a banker,
it was a little hard for me initially to say no even when ultimately that answer needed to be no.
So that was a little learning curve on the front end where I would just be practically bash
in my head against the wall, like trying to find a way to make everything a yes.
Well, some things should be a yes, we may be doing a disservice to the borrower if we say yes.
We've had a couple of those where the borrower in the end comes around and says,
"Geez, I'm glad you didn't approve me for that initial request. This is a lot better situation."
So having that discipline and feeling like you're in it for the long haul with the borrower.
Banking is definitely a heavily regulated industry for good reason.
Every regulation and law that's been passed,
there's probably some reason you can trace back to abuse in the system.
And so, it's really about protecting the consumer and keeping banks out of trouble, not getting over
extended and ultimately potentially failing as an institution.
So, there's sometimes regulatory processes that we have to go through that
there's a lot of red tape in the back end.
We fortunately have professionals that that's their focus area.
Sometimes that can be frustrating when your main job is to be the salesperson.
And it's like, what do you mean we can't say that in our advertisement?
That's what we do. And so, there's sometimes limitations there,
but more than any of that, sometimes just bad things happen to good people for no fault of theirs.
You may have a business that for whatever reason their business becomes irrelevant,
they haven't changed with the times or the main manager of the business could get sick or pass away.
Those are situations where there isn't a succession plan in place or other management capacity
that can be a difficult situation to work through.
If you have a borrower who maybe is dishonest with you
and you don't find out until too late, that can be a difficult situation.
I have not had that really come up much.
We tend to look at things under a microscope enough on the front end that we can see
if there's something shady going on, but transparency is so big in this business.
And it's a two-way street with the customer.
If they can let us know what's going on, Hey, I've got a challenge coming up here or things are tight.
Can you help me get through this?
I'd much rather have that and deal with that than have somebody drop the keys off to their building on our desk.
And we try to keep a good pulse on how things are going at all times.
And that can sometimes be a pesky thing that we're asking you for your financial information once a year
or maybe more often in some cases,
but it's really just so we can make sure we're heading off any problems before they become big problems.
We really advise people of any business size, you should have a good accountant working with you.
They will often give you the best advice and an attorney at times.
Having that accountant that can help you really understand what's going on financially with the business.