Is the Bank in the Market Regularly?
The banks will say they are always in the market. The reality- some are, but others fade in and out. The past 8 months have been a great example.
Even if you have a term sheet now from a bank, take a look at the past history and see if they consistently have been in the market. They are asking you a lot of questions. You should ask them just as many. This is a key one.
What could take them out of the market?
- The current financial markets- some banks cannot participate as well in tough markets
- Credit issues at the bank- they may have been tight on reserves
- Management changes- they may have cut back on loan officers or had key people leave
- Types of credits- they may specialize in types of credits and be subject to cycles, versus a bank with a diversified portfolio
- Deposit sources- some banks lack a steady source of deposits or have to rely on outside capital which can shut down
- Acquisitions- an acquisition can be very time consuming and take attention away from regular business
- Ownership- they may be wanting to sell due to age, opportunities in the market or other reasons
How can you find this out?
- Check published data
- Have a financial advisor who is wired into the market
- Get to know as many bankers as you can
- Ask the banker who is prospecting for your business
Some questions you could ask the banker:
- Are you seeking new business right now?
- What has your history been the past few years for new loans?
- What makes up your new loans (real estate, asset based, cash flow, etc.)?
- How many commercial loan officers do you have and how has that changed?
- What is your source of deposits and what are the trends?
- How have your cost of funds changed the past few years?
- How tight are your reserve requirements and how has the cushion changed?
- How have you grown and what role has acquisitions played?
- How did past acquisitions affect your operation?
- Who owns the bank and what is the long term goal?
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