How to Make Commercial Lending More Profitable

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Commercial lending has been a staple for most community banks but is it possible to make lending more profitable for the bank? Are most commercial loans priced too cheaply for small loans and too high for larger loans? The answer to both of these questions is “yes”.

Bank’s lenders need to know which customers are profitable and which ones are not. Does the type and size of the loan matter and how do you factor in the customer’s deposit relationship into the profitability equation? Do your bank’s lenders work for the customer or for the bank when it comes to loan pricing and whether or not to charge a fee? Well, we all know the answer to that question…they are working for the borrower and not for the bank.

A loan and deposit pricing tool will help banks increase net interest income and win more deals when in a competitive situation. Even though getting fees on loans is always a good thing do they really matter to the profitability of the loan? Of course the answer is it depends on the type, size, and term of the loan. Not many banks factor this into the equation.

Relationship profitability many times comes down to does the customer have multiple loans and deposits with the bank? Or, could I get a deposit account if I make a loan to a new customer. All of this is relevant but the type and size of the loans/deposits are critical. Are the deposits interest bearing or in an operating account? Are the customer’s loans small or large and how many loans are there?

Loan pricing tools have been around for decades and most large and regional banks use them. Strunk’s loan, relationship and deposit pricing solution is easy to use, affordable and your lenders will like the tool. Contact Strunk at 800.728.3116 or email me at info@strunkaccess.com to learn about how our loan pricing tool will increase net interest income by at least 25bp.

 

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