I received an appalling phone call yesterday that you need to read about here. Since the Financial and Economic Crisis began in earnest several months ago, I’ve been getting more and more requests for appointments with small business lenders. Specifically, I’ve been getting resumes and job requests from SBA business development officers (BDO’s) and bank commercial loan officers from across the country. At this point in time, I’ve received no fewer than 45 requests in the past 3 months. Mostly I’ve tossed these in the circular file, but I’ve scheduled calls with a few to see what they have in mind and what they could offer my firm.
For some, I’ve put it out there that we don’t hire loan officers anymore. We’ve tried that experiment; it doesn’t work. The “80/20 rule,” as I’ve written about previously, is alive and well with salespeople – 80% of them are a complete waste of your time, resources and money, while only 20% ever succeed to an acceptable level. Unlike everyone else in our industry, we went to a model several years ago whereby we work with correspondents who represent us in a certain geographic area. We customize for them the ground-breaking marketing we regularly do for ourselves. We also do all of their underwriting, closing and funding…so they’re really only our “eyes and ears” in a given marketplace and I spend time coaching them on how to sell our loan products in the most effective manner.
Obviously, there’s a fee involved for us to do so much of the work for them, but in return, we pay these ACEs (that’s what we call them) 40% to 50% of the money we make on the commercial loans that we jointly originate. As you can imagine, this is radically different than anything else out there in our industry, but our ACEs make substantially more than they otherwise could doing it the “old fashioned way.” This also has the side-benefit for us of converting what would normally be a fixed cost for salaries into a variable cost based on results only. Few businesses have the courage to defy their industry’s norms and customs, and we’ve done it from Day One, but I digress…
On my call with a successful loan officer yesterday, I asked what her loan volume had been over the past three years. Her answers put her in the top 10%, maybe even 5%, in our industry as far as results are concerned. So far, so good – that’s why she made the initial cut and got a phone appointment scheduled. Then, I asked her what her mix of SBA 7(a) and 504 loans were. She replied by not really answering my direct question. Her response was, “I have done lots of real estate deals. In fact, most of my deals over the past 15 years have been real estate-oriented.”
“So what percentage of those were 7(a)’s versus 504’s?” I asked again.
“Well…mostly they were 7(a)’s. [nervous laugh] You know, I steered them to 7(a)’s because that’s where the money’s at. Small business people don’t really know the difference, they just want the loan. So I…I kind of take advantage of the situation, because I know I can make more money if they take my 7(a) loan. I know their hot buttons, and I know how to push them. That’s what they train us to do, so it’s pretty easy [to manipulate small businesspeople]. But, Chris, you know, I can just as easily push 504’s on them if you hire me.”
I was steaming mad. I nearly hung-up the phone on her. Of course, her response is exactly what I’ve been trying to tell the powers-that-be in the SBA world for nearly 6 years. It’s exactly what’s wrong with the banking world. When Citibank takes $20 billion in federal assistance, yet continues to pursue their $$400,000,000 stadium naming rights, is there any doubt that the guys running Big Banks just don’t get it?!? Why should we expect the people working in these same Big Banks to think any differently?!? They really don’t have the best interests of the small business community at heart, and it’s why many in our community aren’t exactly shedding tears over their recent demise. The joke of course that you’ve probably heard is, “Why don’t we ALL just convert to a bank so we too can feed at the government’s trough? They seem to be giving away money, right?” Not quite, but the sentiment reveals some disturbing developments and gives a glimpse into where our society is heading if we don’t start supporting self-reliant entrepreneurs again.
Now before getting off the phone with her, I suggested our ACE correspondent program to her, knowing full-well what her response probably would be. I’ve suggested it to dozens of laid-off or about to be laid-off small business bankers. How many of these people, whose jobs it’s been to finance small business people and entrepreneurs for the better part of their professional careers, are willing to now become entrepreneurs themselves? How many of these same people are now willing to go to work for themselves, would you guess? To trade in the security of a steady salary and limited upside, for the risks inherent in being their own boss and unlimited upside…for much more income potential? Well, if you guessed none, then you win the prize. Absolutely none of these folks have taken me up on my offer. In a year when most financial service firms would be happy with only 30% reductions in revenue, we’ve been flat to slightly ahead of our record-breaking last year…and these folks could have the same successful, business-generating marketing campaigns deployed for them. But do they see it? No. And yet, these are the people who America’s small businesses must turn to! Oh, the irony!
It’s truly shocking and appalling to me to witness such behavior and to hear it first-hand. But, when I peel back the layers…it’s really why we’re in business. We haven’t shut-down our lending like the Big Banks have. We still support our core community of prospects: small businesses and entrepreneurs. How the Big Banks will ever reverse themselves in the future is beyond me – hopefully long memories will prevail.
Entrepreneurs and small business owners should have the opportunity to get the best commercial loan (a 504, or what we call our “SmartChoice” commercial loan) when they want to convert their rental payments into mortgage payments that build equity for their future. When they want to increase their net worth, rather than their landlord’s. It’s why I’ve been such a critic of the SBA loan programs’ overlap — when left to their own devices, small business bankers will act out of their own self-interest first (for bigger commissions) even when it defies their advertising campaigns about doing what’s right and in the best interests of their small business clients. It’s human nature, so unfortunately, we need to take away the allure of doing what’s wrong.
This year, on Thanksgiving, when you’re seated around your table with family and maybe even friends, please remember to give thanks to America’s entrepreneurs and small businesspeople. To the men and women innovating and making our lives better in the process, all across our land. To the people facing up to the industry titans that often don’t have our best interests at heart. These are the people who will lead us out of the economic downturn we’re now in. They need our support and our prayers. They need bankers and advisors that really do have their best interests at heart. They need public policies that won’t hinder their growth.
Certainly thank our Maker and our nation’s Founders, and certainly pray for wisdom and courage for our nation’s leaders and our military, but also remember to pray for those employing over half of our country’s workforce. These people aren’t thanked enough and are usually forgotten, because there are so many of them fragmented into so many different industries that their voices aren’t heard very often…frankly, they’re too busy to stop and seek support. This is the life entrepreneurs lead…it’s one I know and much of my staff knows, too…it’s the life most small business lenders only superficially understand. So, thank the Entrepreneur and the Small Business Owner this Thanksgiving. They deserve it, and it’s where our nation is heading…we’re evolving from the Big Dumb Company Era into one where niched, entrepreneurial firms will differentiate and dominate. Maybe it’s time you get on the bandwagon? Maybe it’s time you joined us?
Happy Thanksgiving to you and yours and know that we’re grateful for your support