How to Better Advise Commercial Clients About Rates in 2024

Many economists and analysts predict that the Federal Reserve and other central banks will start easing monetary policy in 2024.  Many bankers and borrowers are convinced that a recession is imminent despite no clear evidence for such a conclusion.  How should lenders discuss interest rates in 2024, and what advice should relationship managers provide their…

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6 Concepts Borrowers Must Understand About The Lending Curve

Most borrowers have a rudimentary understanding of interest rates, the yield curve, forward rates, and forward premiums.  Commercial bankers are trusted advisors and have a unique opportunity to understand their client’s specific financial and personal situations, explain the basic concepts of capital markets, and offer prudent and objective advice to help customers reach their goals. …

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Using A Commercial Step-Up Loan to Increase NIM and Fees

Community banks are striving to increase loan yield and maintain their cost of funding (COF).  Unfortunately, pressure on COF is expected to remain, and loans will reprice slower than expected as borrowers with below-market rates will wait until the last maturity day to refinance their credits.  We have created and used a novel structure to…

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The Power Of Three – Using Our Updated Loan Proposal Generator

Our article last week (HERE) discussed the “power of three” marketing rule and how to use it for loan proposals.  The rule states that human brains make better decisions when given a small selection of appropriate options but not too many to become confused. One or two options are usually insufficient, and five or more…

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Use This Loan Proposal Tactic To Boost Conversions

We review hundreds of term sheets and proposals for commercial borrowers each month.  One successful loan proposal tactic for community banks to improve their acceptance rate is to embrace the old marketing rule of the “power of three.”  We often see banks proposing one or two options for a commercial borrower, and often, the options…

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Don’t Make These Mistakes When Issuing a Loan Proposal Letter

Last week, we discussed how and why commercial lenders use a bank loan proposal letter (aka commitment letters) to their advantage (HERE).  We argued that a proper strategy and a well-crafted loan proposal letter could help lenders close loans quicker, eliminate more competitors, secure better pricing, and obtain the desired credit structure. In this article,…

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The Secrets of Good Loan Commitment Letters

Good commercial lenders use commitment letters and proposal letters to their advantage.  A proposal letter (or letter of intent) expresses interest from the lender before credit approval is obtained.  A commitment letter evidences the lender’s commitment to lend.  It is only furnished after preliminary credit approval and typically contains the following language: lender commits to…

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How Banks Can Better Use Grid-Based Pricing

Grid-based pricing is typically used to set the applicable margin of a loan based on specific performance measures, such as credit rating or cash flow coverage.  However, grid-based pricing can also be used to increase deposit balances.  The average borrower does not calculate their cost of borrowing and return on deposits on the economic value…

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The Steps and Tools For Tactical Loan Refinancings

In two articles in the past few weeks (here and here), we discussed how the “higher-for-longer” interest rate environment will affect the community bank sector – continued increase in the cost of funds (COF), steady yields on loans, and a decrease in net interest margin (NIM) will put severe pressure on ROE for new loan…

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Strategic Loan Refinancing for Profitability

In an article last week (Here), we discussed how the higher-for-longer interest rate environment will affect the community bank sector. Stable short-term rates for the next year or longer will increase cost of funds (COF), hold yields on loans steady, decrease net interest margin (NIM), and pressure return on equity (ROE) for new credit assets. …

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How to Manage Your Efficiency Ratio with Loan Size

The banking industry’s average efficiency ratio worsened for the first time since 2021. The industry’s efficiency ratio increased to 54.30% in Q2/23 from 52.98% in Q1/23. This development is very important to community banks, as their efficiency ratio also increased, but to 61.63%. The national banks have already indicated how they plan to reverse the…

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The Term Structure of Rates and Its Impact on Commercial Borrowing

Bankers need to consider the term structure of rates, also known as the yield curve shape, when structuring and pricing commercial loans to maximize return and reduce risk.  Many bankers and borrowers are convinced that a recession is imminent, but the current term structure of rates does not necessarily establish this conclusion.  The yield curve’s…

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