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Tough loan climate makes good decisions more critical…

It is no surprise that the current rate environment is pinching the profits of lenders. If you missed it, there is a good article in the Puget Sound Business Journal in which economists say tough loan climate for banks may linger.

From Accounting 101, when costs go up you have two choices…well, three.

One…increase prices. In the competitive market of banking this is a challenge. The way you can keep your customers from shopping rates is to have solid relationships with them. I talk about that often in this blog.

Two…keep your prices and increase your volume. Keeping concentration risk in mind, doing more of the most profitable activities will lead to more business.

Your best source for more business will be more loans to the same borrowers…the ones who already think you are great because you have taken the time to build the relationships.

Your second best source is new business, the borrowers with whom their current lender has not taken the time to create a strong relationship.

Three…take a hit to the bottom line. I did not think you would like that one.

It is even more important in a less profitable loan environment to make every loan a good one…and not to miss good ones because you don’t know where to look. Here are some suggestions:

  • Understand business so you can create the relationships that keep your current clients
    • Read business books and periodicals
    • Engage in conversation at the Chamber, Rotary, Kiwanis meetings
    • Really talk to your business clients about their business and business in general
  • Maintain the relationships you have created
  • Find and cultivate a mentor who is a senior lender, has considerable experience and is willing to share insights with you.
About the Author
Linda Keith CPA is an expert in credit risk readiness and credit analysis. She trains banks and credit unions throughout the United States, both in-house and in open-enrollment sessions, on Tax Return and Financial Statement Analysis. She is in the trenches with lenders, analysts and underwriters helping them say "yes" to good loans. Creator of the Tax Return Analysis Virtual Classroom at, she speaks at banking associations on risk management, lending and director finance topics.