Eight Ways to Grow Your Loan Portfolio

The uneven economic recovery may be sputtering along in fits and starts, but it appears loan volume has improved at commercial banks. According to Federal Reserve Economic Data (FRED), the volume of all commercial and industrial (C&I) loans at U.S. banks has grown from $1.2 billion in October 2010 to more than $1.5 billion in April 2013. This brings C&I loan volume almost back to its peak level of $1.6 billion in October of 2008, before the financial crisis and recession hit.

Get in the Game

These positive trends indicate the economy is rebounding and the time has come for community banks that have been sitting on the sidelines to get back in the game. Over the last few years many banks have significantly increased their deposit and liquidity levels, which can now be used to increase lending. Due to changes in the lending environment that emerged out of the financial crisis, banks are now challenged with finding the right lending opportunities that will help grow their loan portfolios without excessive regulatory scrutiny and undue risk. Taking advantage of current lending opportunities may be easier when you consider the following eight strategies for growing your loan portfolio in the current economic environment:

1) Cultivate centers of influence as referral sources.

One of the most effective ways to learn about new lending opportunities and get introductions to potentially qualified borrowers is to cultivate relationships with accountants, attorneys, insurance agents and brokers, and other service providers in your community. Your objective is to continually keep your name in front of these professionals so whenever they hear about a business that is planning to expand, relocate, or buy new equipment that will need to be financed they refer someone to you for guidance. To ensure you are top-in-mind with these professionals you could create a database of referral sources and send them regular, value-added communications via an e-newsletter, postcards, or even an occasional phone call. Plan to take one new referral source out to lunch two or three times every month.

2) Meet regularly with your line lenders.

If you’re a manager, you should schedule regular pipeline meetings with your lenders to review what’s in their pipeline, how these prospects are progressing, and other pertinent details regarding potential financing. You should hold your lenders accountable for taking specific actions each week that will increase the odds of closing a loan. In addition, ensure lenders aren’t hanging on to prospects that don’t seem promising by helping them quickly disqualify prospects that are not creditworthy, unwilling to pay premium pricing, or are difficult to work with. Disqualification of a prospect should occur as close to “hello” as possible to allow your lenders to work on more qualified prospects.

3) Keep your prospect databases current.

An updated database is necessary in order to maintain efficiency. Databases are like gardens: If a garden isn’t cultivated and maintained, it soon becomes overgrown and choked with weeds. Similarly, your lenders’ have to pull out the inaccurate data in order to ensure that the accurate data receives their attention and has the potential to flourish. Prospect lists should be sorted in an orderly manner, such as prioritizing by revenue, geographic area, industry niche, or prospect strength. For example, A and B prospects could be those expected to close loans within 15 to 30 days and C prospects within 30-60 days. D and F prospects would be those not realistically expected to close a loan in less than 60 days, with F prospects moved out of the database.

4) Increase community involvement and visibility.

In addition to providing quality services, community banks strive to partner with their communities to create better places to live and work. A benefit to this commitment is an increase in a bank’s visibility through donating resources and time to the community. Many community banks require their lenders to volunteer with or serve on the boards of community organizations and nonprofits. Sponsoring local teams, community events like art and food festivals, financial education, and 5k runs are good ways to increase your bank’s visibility in your local community, as is hosting business seminars, workshops, and serving as mentors.

5) Cultivate cross-sell opportunities.

One of the easiest and most steady sources of new business and related revenue is to reach out to current customers for additional business. Some of your best prospects for commercial loans might be right under your nose. It’s not uncommon for businesses to utilize one bank for services like treasury management and merchant services and another for loans. If you have business service customers who aren’t borrowing money from your bank, arrange a meeting to talk with them about any potential financing needs they may have.

6) Scrutinize your customers’ financial statements.

You may already have the information necessary to determine your customers’ needs. Reviewing financial information provided by your customers may allow you to identify areas of need. For instance, if your customers’ balance sheet shows levels of accumulated depreciation in excess of the net book value of fixed assets this may indicate a possible need for your customer to purchase new equipment or fixed assets. While you can easily access this data via your current customers’ financial statements, it’s also accessible for prospective customers with some digging and due diligence. Doing so will help you and your lenders be more proactive when calling on prospects and recommending financing solutions.

7) Look for maturing balloon payments.

Generally, commercial loans will carry a five to seven year maturity with a balloon payment at maturity. Likewise, many commercial real estate loans that originated in the mid-2000s will likely be refinanced soon. However, many banks have decided to reduce their exposure to CRE or they’re under regulatory pressure to do so. These scenarios could present good CRE lending opportunities for your bank.

8)Target the customers of your troubled competitors.

Another strategy to help grow your portfolio is to pick off a competitor’s disgruntled customers. Chances are there’s at least one troubled bank in your market area that is unwilling or unable to meet many of its customers’ financing needs. You can download any bank’s Uniform Bank Performance Report to look for possible indications of weakness in its financial condition. Then create a calling effort that targets these banks’ best customers. We can help you implement these and other strategies designed to grow your loan portfolio.

Please call us to discuss your bank’s situation in more detail 417-881-0145.

To read our second article with 'Five More Ways to Grow Your Loan Portfolio,' click here. For more information on our services for community banks, please click here.