All banks know their top lenders are critical to the bank’s future performance. Because lenders allocate so much of the capital, their success (or lack thereof) will dictate the bank’s profits and risk profile. (See this post for some data on just how big that impact is.) Relying so heavily on just a few people tends to make CEOs nervous, though, and leads to a big underlying question. Are great lenders born, or are they made?
If great lenders are born, and just happen to have innate abilities that others simply can’t replicate, then the solution is
simple: Start recruiting. This is expensive, and the results don’t always live up to the expectations, but if great lenders are just
born that way, then the only answer is to find proven producers and hire them away from the competition.
But what if great lenders are made? What if we can train and develop the next generation of stars from within our own ranks?
To figure out if this is possible, let’s start by figuring out what makes some lenders great. What traits do they share that are so different from everyone else? We spend a lot of time talking to banks about this issue as we try to build tools for the best lenders, and the same three traits come up over and over again.
First and foremost, lenders need to have empathy, and I mean empathy in the true sense of the word, not just the “suck up to the customer” approach that some banks seem to teach. Empathy means the lender starts at the customer and works backwards into a viable deal. What kind of project are they financing? How will it affect the rest of their business? Which deal terms are likely to be most painful to them, and which are deal killers if we don’t get them right? Empathetic lenders never start from a standard structure on a rate sheet. Making the deal fit into the bank’s policies and profitability targets comes later, after they have established what works best for the customer.
There is another side to empathy, as well. The best lenders know that getting a deal done quickly and efficiently relies on a lot of other people. Along the way they might need help from loan assistants, credit analysts, appraisers, attorneys, board members, title companies, and branch staff, just to name a few. Lenders might be able to steamroll those folks to get what they need once or twice, but to be able to consistently get complex transactions done, they will need to show noticeable empathy and respect for everyone involved.
2: Communication Skills
The second trait is related to the first. Part of empathizing with a borrower is understanding that, while you may be eyeball deep in multi-million dollar loan transactions every day, this is a rare event for them. Lenders need to clearly spell out what the process will look like from the beginning, including the big milestones and potential risks. Then, the borrower needs regular updates on progress, even if you are still just waiting for appraisals, title work, approvals.
Put yourself in your borrower’s shoes. They are waiting for you to get some mysterious behind-the-scenes paperwork done so they can get the capital they need. Delays (or denials) mean dead projects and lost money, so going weeks without hearing anything will inevitably lead to frustration.
3: Quantitative > Qualitative
When I was learning the banking business, one of my early bosses taught me something really important. He said, “If you stay in this business long enough, you will eventually get burned by every type of borrower. Learn your lessons, but don’t let it get emotional.” Spend time around enough banks, and you’ll learn the wisdom in that statement.
The best lenders know to rely on the data, and to ignore their lizard brain. The lizard brain falls for patterns that don’t exist, and attribute skill or risk to random wins and losses. Bankers that are letting their lizard brain call the shots often say things like ““Remember that hotel deal from a few years back? We’re NEVER doing another one.”
The data and analytics will tell the best lenders which deals and structures are right. I have met lots of bankers who claim they are successful because they follow a “gut instinct.” In my experience, they eventually find heartburn, either in the form of unforeseen risk or missed opportunities.
While there are lots of other traits that are important to being a successful lender, most of them will fall into one of those three buckets. The one thing you might have noticed is missing, though, is “technical knowledge.” Don’t lenders need to understand credit risk, and the basics of how to structure a deal?
Absolutely, but we have also found that those skills don’t make a great lender. They’re table stakes – you have to have them in order to even play the game. Most banks we talk to are concerned about how to train the next generation of lenders, but the focus is almost always on credit training. Instead it should be on building relationships and adding value for customers; teach lenders those skills, and big production will follow.
How do you go about developing those skills and traits in your lenders? We’ll tackle that topic in our next blog post.