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What is it that separates top commercial relationship managers from the rest?
In part two of our ongoing look at the tactics - and really, the characteristics, as well - of the best RMs, Gita Tholleson, Precisionlender SVP of Client success, talks with Jim Young about how RMs deliver tangible value, act as trusted advisors, and find ways to outmaneuver the competition.
If you want to start start with part one of the series, just click here.
Jim Young: Hi, and welcome to The Purposeful Banker, the podcast brought to you by Precision Lender, where we discuss the big topics on the minds of today's best bankers. I'm your host, Jim Young, Director of Communications for Precision Lender, and I'm joined again by Gita Tholleson.
Gita is an SVP for Client Success here at Precision Lender. She made her first appearance on this podcast last month, when she shared some of the winning tactics of top commercial relationship managers.
She accumulated much of this knowledge during her previous position as Director of Analytics for S&P's commercial loan, middle, and lower middle market business. That podcast was a hit and Gita really only scratched the surface of all the stories she had to tell, so we brought her on to share more of those strategies and tactics.
Sometimes we'll actually go back to some of the topics we covered in the first podcast, because Gita has more insightful stories to share on them. So Gita, welcome back to The Purposeful Banker.
Gita Tholleson: Thank, Jim. Pleasure to be back.
Jim Young: Gita, in a way, when I looked at the outline you sent me before this, I almost felt like as much as tactics, it's almost winning traits of commercial RMs. In a way, it's like you're a great commercial RM if, and first on that list was, if you're delivering tangible, measurable value.
Now, I know we can measure the value that RMs bring to their bank, but how do you measure what they deliver to the customer?
Gita Tholleson: Well, in a lot of cases, bankers can actually quantify the value they're delivering.
I recall one deal for a company that was looking to do an acquisition. They shopped the credit and got a bid from a bank offering them a 15-year term on the acquisition financing, whereas the bank that I was speaking to couldn't go beyond 10 years. This particular company had been concerned about cash flow, so the competing deal gave them great cash flow through these low payments, given that it was spread over a 15-year term.
But understanding that cash flow was the issue, the banker that I spoke with did the math relative to the company's own projections and found that not only would the shorter term give them adequate cash flow but they would save the company over $100,000 through the shorter term, even though the rate was 15 basis points higher than the competing rate.
So they addressed the company's real issue, the cash flow, and saved them 100 grand, plus they earned another 15 basis points for the bank. So it was a win/win.
Jim Young: Yeah, no kidding. Absolutely, and that's gotta be gold when you can come back to a customer and tell them that in that situation.
Let's go back to a topic we discussed last time, called Knowing the Borrower and the Competition. What's a story you'd like to share that highlights this tactic and action?
Gita Tholleson: Well, the story is actually a case where the customer was shopping the credit and got an extremely low bid from another bank. I'm sure a lot of the bankers listening in to this podcast have found themselves in a similar situation. In this particular case, it was an S Corp that wanted to convert to an LLP and they needed an additional $10 million dollars of credit in order to buy back their shares.
The bank that I spoke with said that after doing the credit analysis, they put together reasonable pricing at LIBOR plus 350. But another bank came along and tried to buy the business, pricing it at just LIBOR plus 200. So, the bankers sat down with the CFO and said, look, this relationship is important to us, we don't want to lose it over price but maybe we could deliver value in other ways. And he asked directly which aspects of the competitive offer were unappealing.
So the CFO said, it was the borrowing base structure, which would be prohibitive given their limited staffing, just in terms of monitoring the assets. So understanding what really mattered to the customer, he put together a deal without a borrowing base and he priced it on a grid with the adjustments made at infrequent intervals, so annually rather than monthly or quarterly so that it wouldn't be a process burden for the customer.
He set up the grid using the company's own projections, starting out at just under L plus 300 and giving them the potential of getting the price down to about 2 1/4 after a couple of years. The bank won this deal, despite not having matched the competitive price, by understanding what mattered to the customer and addressing that specific issue.
Jim Young: Yeah, and really, and this is something we talk a lot about here, and really just knowing the right question to ask. Sometimes I know people say if you ask a customer, and this is where the expertise comes in, they want a lower rate. But if you ask them the questions and know what to look for, you can find pain points in some ways that maybe they didn't even know were pain points for them or didn't know were addressable from what the bank could do.
Gita Tholleson: That's exactly right, Jim.
Jim Young: Another topic from last time was the concept of acting like a trusted advisor instead of a vendor. Obviously the one we just talked about is somewhat of an example of that but do you have another anecdote or two you'd like to share?
Gita Tholleson: Sure. There was one recent deal to a dentist, just starting out. He was a recent graduate, which meant, as you can imagine, that he had a lot of debt and not too much liquidity. But he bought a fast-growing practice and the cash flows were great, plus he had a teaching position that gave him additional income.
His practice was growing so fast that he wanted to upgrade to a larger office space and he found the perfect location across the street. But the issue was that he had limited cash to put down. So in this case, what was most important to the customer was doing a deal with a limited down payment.
Now, this particular bank couldn't do more than 80% loan to value, so what this banker did was to do a participation with the state's economic development agency, which funded 100% of their share. So on a blended basis, the deal ended up being 95% funded. Plus, they got a great rate on the deal while mitigating the bank's risk. So it was an out-of-the-box way of addressing the company's real business issues and delivering value rather than just being a vendor.
Jim Young: Yeah, absolutely. And, again, delivering that expertise, to know where to look to have that other option out there. Absolutely.
Gita Tholleson: That's right.
Jim Young: Here's an area we didn't get into last time, called Providing Certainty of Execution. Now is this just a matter of knowing the deal you negotiate with your clients will make it onto the books?
Gita Tholleson: Well this is one I've heard from several bankers. Borrowers want to know that you can deliver. It's less about the RM having autonomy or control and more a matter of knowing what you can sell internally with credit as well as with your sales leadership.
Having clear profitability goals in terms of ROE or RAROC helps as well. In addition, having those pre-call discussions with credit are very helpful, especially if it's something a little bit out of the box.
Sometimes it's also a matter of bringing the decision makers to the table. The worst thing you can do is to put a term sheet out there and not be able to deliver on that.
That said, I do recall one banker telling me that a term sheet is just a starting point for discussion and that that's even written on the term sheet. But, if you keep on proposing things you can't deliver on, eventually you'll lose trust, which is key.
But with several RMs, when I have asked specifically what are your competitive advantages, the response has been, my word is my bond and customers know that if I represent I can do something, they know I'll deliver on that. And that's especially important when the company's own business goals are tied to completion of the deal.
Jim Young: I'm curious, why would you, what is the thinking of going in with the idea that a term sheet is just a starting point for discussion?
Gita Tholleson: Well, I think that came from an RM that perhaps couldn't deliver on what he had promised and so he tries to present it that way to not put himself out there. Whereas other bankers have said specifically that if you continue to do that, you're not going to be able to maintain that customer relationship.
Jim Young: Got it. Yeah. It's almost like the whole thing within financial advisors of past performance is not an indication of future results. But when you sign on with them, you actually want those results.
Let's go back one more time to something that we initially discussed in that previous episode: offering tailored solutions to meet business challenges. You've got one more story you wanted to share here?
Gita Tholleson: Yeah. So this one was to a small hotel in the Amish area of Pennsylvania. The reputation was spreading and people were just dropping in. The RM that I spoke with was there and witnessed that first-hand. They were looking to finance the property but also asked the banker for a line of credit.
He asked, "Well, why do you want the line?" They responded that it was for their slow period, which ran from about November to March. So the RM said, "Well, here's an idea. Has anyone ever spoken to you about seasonal payments?" It's just like a farmer who only collects money during the harvest. He said, "We can structure your payments however you want to and can defer the principal payments so that you're only paying interest during your slow months."
He explained, if you get a line of credit, then you're paying variable rate interest during your slow months and who knows how high that could be in the current environment? It was a different way of looking at things to get the same result for the customer and that was a real competitive advantage since other banks would be more likely to look at things the same way every time.
Jim Young: Yeah, and you know that really flows into a lot of these examples to the things we talk about at Bank on Purpose and what gives you purpose as a banker? To be able to do these sort of things, to be able to provide that sort of assistance to businesses in your community like that, that's really Example A of that sort of thing in action.
Gita Tholleson: Yeah.
Jim Young: Okay, we've got time actually to talk about one more topic. This is not just about a matter of providing certainty of execution. Top RMs can also ensure quick execution but how do they do that? Is this about the tools they have or is it something in their approach?
Gita Tholleson: Well a lot of it has to do with tools and processes. Having the right tools in place to quickly know if the deal that you're proposing is going to pass muster makes a big difference, but some of it also has to do with navigating the bank. Though depending on the size of the deal and the amount of lending authority that the RM has or that the team leader has, the approval process could take some time.
It's interesting that some banks I speak with, two RMs at the same institution, one complains about how cumbersome the process is while the other talks about how they navigate the bank to get things done. Same institution. So quick execution can be a real competitive advantage, especially if the company's business goals are dependent on completion of the deal.
There are lots of cases I've heard where time was of the essence. So a great example of this, there was a utility contracting company in New England and as some folks listening in may be aware, in New England, there are some infrastructure challenges because the natural gas lines are under the roads. So the company has to dig up the site and then repave the road.
Now during the winter months, most of the paving companies shut down, except for one, so the cost of asphalt doubles. This particular contractor did a cost analysis and figured it would actually be more economical to simply purchase the asphalt plant. The cost savings associated with the acquisition would be significant, close to seven figures.
Now the company had been working with three small banks on the financing and started discussions over the summer, but it was just dragging along. By October, the seller of the asphalt plant was ready to walk, and with winter approaching, the opportunity cost of not getting the deal done was significant.
This bank that I was speaking with came in and pulled the deal together in record time. They brought in their senior credit officer and he came with them to the initial meeting in October. Having met the owners and hearing how they run their operation, he was able to move more quickly when the deal came to him later in the process.
They had a term sheet out within three weeks and a commitment letter out in five to six weeks and they closed the deal in mid-December. Now this particular deal was lucrative to the borrower, not only due to the cost savings from the asphalt, but also from the additional business that the company maintained, including some third-party sales to local towns and some small-time pavers.
So this additional business was an added bonus, which just went right to the bottom line. Within the first year, they were profitable and within three years, they'd paid off the debt, which had been structured as a 10-year loan. They repaid it entirely from cash flow.
This company just reaped huge benefits and has felt a loyalty to the bank for getting the deal done. Interestingly enough, on subsequent finances, they've come directly to this bank and have not even shopped the credit.
Jim Young: So that's a fantastic story. You can't always bring your senior credit officer to the deal or negotiations. I guess what I'm still curious about, is there a scalability to this, to being able to just be faster about this stuff or is it more of a, in this particular situation, I did this and it worked?
Gita Tholleson: Well, there absolutely is a scalability to it if you have the right tools and processes in place. So having the right tool to measure profitability to knowing what you can get approved internally, will make a huge difference.
Jim Young: Okay. Well, great. Gita, thanks so much for coming on again.
Gita Tholleson: Absolutely. My pleasure.
Jim Young: And for our listeners, trust me, I've seen the outline that Gita has sent me on this. We've got plenty more to cover on this topic so you can expect to hear Gita again soon on this podcast, but that will do it for this week's show.
A reminder, if you want to listen to more podcasts or check out more of our content, you can visit our resource page at precisionlender.com. Or you can just head over to our home page there and learn more about the company behind the content. Finally, if you like what you've been hearing, make sure to subscribe to the feed in iTunes, SoundCloud, Google Play, or Stitcher. We love to get ratings there and feedback on any of those platforms.
Until next time, this has been Jim Young, for Gita Tholleson, and you've been listening to The Purposeful Banker.
What's Next ...
Learn more about how the best commercial RMs offer insights that help customers "see past rate" during deal conversations.
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About the Author
Jim Young, Director of Communications at PrecisionLender, is an award-winning writer with experience in a range of positions in media and marketing, from reporter to website editor to content marketer.
Throughout his career has focused on the story – how to find it, how to understand it, and how best to share it with others. At PrecisionLender he manages the many ways in which the company shares its philosophy on banking and the power of relationships
Jim graduated Phi Beta Kappa from Duke University and holds a masters degree in journalism from Columbia University.
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