Banks favor face time over tech in business loans
Even as banks embrace more mobile technology to put their services in the pockets of businesspeople, the one area that still depends on face-to-face meetings is the business loan.
Although you can transfer financial documents through cyberspace, the human story that offers them context — and means the difference between loan approval or rejection — requires two people talking to each other, bank officials said.
"Both the bank and the business person see the value of doing this face-to-face interaction," said Janak Amin, the Pennsylvania market CEO for Lancaster County-based Susquehanna Bank.
Character comes out in those meetings, and the loan officer can determine whether the business will be a good fit for the bank, he said.
A factory owner or retailer who wants to expand can send applications, PDF documents and financial statements from smartphones, tablets or desktop computers. But that just gets the process going.
"The numbers are important," Amin said. "But the story behind them is crucial. The numbers might not be pretty, but what's behind them could tell a different story."
The personal meeting lets loan officers gauge the applicant's personal values that drive the business, the emotional connection or detachment to the business, and the vision for the future, he said.
"We like to ask businesspeople, 'What keeps you up at night?'" said Ed Martel, vice president of sales, marketing and branch administration at Lebanon County-based Jonestown Bank and Trust Co.
When clients answer that, they give information about their long-term concerns that helps banks tailor products and services to that business, he said. If they're worried about cash flow, maybe it's worth looking at payroll or credit-card processes before jumping into loans.
The other issue is that clients know their businesses but are not always familiar with banking products, Martel said.
They might think they need a loan, but if cash flow is the concern, they could be better off with a line of credit instead, he said. For a business such as landscaping, a line of credit could help make payroll in lean winter months but avoid interest payments on a full loan amount when business is booming in the summer, he said.
Products tailored to interact with the business efficiently are best, Martel said.
"You can deliver the product through technology," Martel said, "but you can't have a partnership and build a relationship that way."
The condition of a business also is best captured by visiting the location and seeing it for yourself, said John Eyster, the business banking regional manager covering Central Pennsylvania for M&T Bank. The New York-based bank has regional offices in Harrisburg.
"Even with the smallest loans we do, we still want to visit the business, see the facility and touch it," he said.
There's a lot of complexity in businesses and the financial products offered, said Scott Micklewright, chief lending officer of Millersburg-based Mid Penn Bank. Less complexity makes electronic lending more feasible on the consumer side.
"There's so many more variables in business lending," he said.
No matter the reasons given for technology playing less of a role in business lending, everyone comes back to the character of the business owner.
After the last recession, personal relationships are giving lenders the backstory that assists them in tailoring services and products to meet the client's future needs, Amin said.
Where has the company been during the past two years? How did it manage the tough times? What does its backlog of business look like today? These are questions that need a personal response, he said.
How business owners interact with employees in tough times also can be important, Amin said. Did they keep them around? If they had to lay off workers, did they rehire them when business returned?
"It tells you that client isn't going to walk away from their loan obligation if they didn't walk away from their employees," Amin said.