This section will provide you with an overview of how to get the best pricing you can all go through
a list of ways to reduce your interest costs I wrote a commercial customer profitability system for
loan officers over 20 years ago.
I've been analyzing and approving loan pricing for much of my career.
Here are some tips for getting the best loan pricing.
I said it earlier and I'll say it again.
Other services you have at the bank especially your deposits are very valuable to the bank.
It drives most of the profit.
The stock price of a bank is driven more by their deposit base than any other factor including loans.
Banks may require you to keep some deposits with them.
These deposits are called compensating balances by bankers.
Those balances increased profitability by reducing the risk of loss.
If you can't pay back the loan and because your deposits are a cheap source of funding for your loan
and other loans it never hurts to ask if the lender will lower their rate if you move more deposits
to them or use more services asking for a shorter repricing term balloon term or amortization term should
reduce the interest rate on your loan.
Think of banks as distributors who buy and sell funds when they sell funds to you for 10 years as a
loan.
They have to buy or borrow money that's locked in for 10 years.
Their cost of funds or cost for that money go up as the length of the term goes up and they pass that
cost along to you shortening the advertiser Asian period also reduces their chance of losses.
If you have trouble paying off the loan in the future.
On the other hand don't reduce the amortization period so much that it jeopardizes your current cash
flow.
There are three major loan costs that you can negotiate the origination fee the interest rate and the
prepayment fee in home mortgage lending.
Reducing the interest rate on a loan by increasing the origination fees or points as are called with
home loans or increasing the interest rate to reduce the origination fee.
Happens all the time.
Business loans are no different.
If you expect to pay off the loan soon you can reduce the origination fee by accepting a higher interest
rate.
It may save you in the long run.
Don't forget the cost of prepayment fees.
If you are likely to pay off the loan soon either through cash flow or by the sale of the asset.
Make sure the prepayment fee isn't too expensive or can be waived under certain conditions.
Once again lenders are more willing to reduce prepayment fees with shorter loan terms or reduce the
fee with higher interest rates.
I wouldn't get too aggressive with this because most lenders already underpriced the prepayment fee
like moving deposits.
You can also reduce the loan cost by refinancing loans at other banks with the lender you are now approaching.
If you are trying to get a commercial real estate loan they would be very interested in your operating
line of credit.
The line usually comes with operating cash accounts and other business services.
Refinancing would also make sense if loan rates have gone down since you last took out the loan at the
other bank your business accounts aren't the only accounts you can move to reduce your loan costs.
Moving your personal accounts also increases your overall customer profitability to the bank which gives
your loan officer greater flexibility in reducing your loan cost moving business operational accounts
like the line of credit and personal accounts also signals that you're making a longer term commitment
to the bank which increases your lifetime value to them.
Once again the more you give the more you get improving your financial health isn't something you can
do overnight but over time it will reduce your pricing.
The financially stronger you are the less risky you are.
Which means you get a better pricing.
I'll explain exactly how lenders assess your riskiness and the underwriting section of this course.
Your timeliness and completeness in your responses to the application process also build your credibility
with the lender.
I wish I had a dollar for every time a loan officer justified low pricing on a loan by saying The customer
is a great referral source.
It's like the punch line of a customer profitability joke.
The officer knows the loan modeling system says the customer's profitability which includes measures
of the customer's riskiness doesn't need the return usually required for the lender to invest the loan
funds as a last act of desperation.
The officer tries to point out the profits or at least potential profits from other referrals.
The customer has made to the bank actually referring customers to the lender can improve your chances
of lower pricing.
It makes the pleas of the officer more believable.