Should Lenders Price Their Own Loans?

Bankers should consider several factors when pricing loans that meet the bank’s profitability target and also win the deal. Often times when asked what the rate is for commercial loan, a banker will give the same rate regardless if the loan is for $2M or for $250K. In other words many banks price their loans based on the type of loan and not the size. This is a mistake.

Size matters. So does the term, fees, risk, return to the bank and cost of funds. Does the customer have other loans or deposits with the bank and are they profitable? Do your lenders know what the cost to originate or service the loan is? How can they price the loan if they don’t know these things?

Competition is fierce especially for the A rated borrowers. Community banks saw finance companies and car dealerships steal installment lending from them in the 1990’s. Farm Credit is a huge competitor for Ag real estate loans. How can a bank possibly compete with rates they offer your customers? The short answer is you can.

With net interest margins narrowing, now is the time to look at a loan pricing solution that takes all of these factors into consideration. Don’t lose another deal due to price before you look at how you can compete and meet your profitability goals.

Contact Strunk at 800-728-3116 or email at info@strunkaccess.com to learn about how our loan pricing tool will increase net interest income by at least 25 bp.