Save Money by Annually Evaluating Your Bank Lending Program

By Eugene E. Valdez

Business owners of the Inland Empire are all trying to manage their companies strategically in the face of a highly competitive marketplace. CEOs are constantly “tweaking” their business models in an effort to increase branding, increase revenues, reduce expenses, increase profits and increase market share at the expense of their competitors.

One aspect of tweaking business models is an annual evaluation of the effectiveness and value of the vendors and service providers a CEO is using. These vendor/service providers could include but not be limited, to inventory vendors, commercial insurance agents, CPAs, business coach/consultants , bankers, attorneys, social media marketing experts, pay roll service providers and PR firms to name a few.

All of these business service providers/vendors are in highly competitive industries and thus it is their obligation to “earn a CEO’s business” by delivering value on a consistent basis.

Perhaps no industry is more competitive than the commercial banking industry. While the general business community may view banker’s “money” as a commodity, every bank is slightly different in how they underwrite and approve   commercial loan requests. The underwriting differences manifest themselves in the “terms and conditions”. Terms and conditions can vary dramatically from bank to bank.

Therefore, since access to fast, strategic and competitively priced bank financing is very important, we at The CEO Teachers believe that a CEO’s banking relationship is a key vendor relationships. Thus, we believe it is highly strategic for CEOs to evaluate and review the soundness and fairness of their commercial bank lending program on an annual basis.

The goal of this annual review is to ensure that CEOs are getting the best lending program they deserve based on their company’s unique credit risk profile. The banking industry refers to this profile as a company’s “bankable profile”.

A CEO’s should review all aspects of their current bank lending program. An example of the terms that should be analyzed and evaluated are listed below:

·        Amount/Type of  Current Loans

·        Interest Rate

·        Type of Rate, ( i.e. fixed or adjustable)

·        Index used for rate, (prime, libor, treasury note rate, etc.)

·        Frequency of rate change

·        Amortization & Maturity

·        Balloon Payments

·        30 day line of credit out of debt requirements

·        Loan Fees

·        Document Fees

·        Required Collateral

·        Amount of Personal Guarantees

·        Required Financial Covenants

·        Required Financial Reporting, (CPA, compiled, reviewed, audit?)

·        Subordination Agreements

·        Prepayment Penalty Formulas

·        Interest rates on deposit & saving accounts

·        Amount of monthly checking account service charges

After the CEO has completed their review it is our suggestion that the CEO discuss their findings with their trusted advisors, (CPA, attorney, business coach) and then make an appointment to meet with their banker to see what modifications they are willing to make.

This whole process could help CEO’s reduce the cost of their bank lending program without sacrificing quality.

Eugene E. Valdez is Founder and President of The CEO Teachers and can be reached at [email protected] or (909) 230-0024.