Think OFFENSE!

When was the last time you talked about a 20-25 year fixed rate with one of your customers?

Historically, we all know the 504 product has been used as a credit enhancement. If the credit department was nervous about a deal, then you would make them feel better with the 50% LTV that the 504 product offers.

However, the 504 program has been under-used as part of pricing strategy. As bankers, we all wish we did not have several competitors on every deal. The reality is that it is the norm and not the exception.

In survey after survey, businesses have said that they are looking for something value-added in their banking relationship. They don’t want to hear about the same old products. They want to know “How can you save me money or make me money”? The 504 product has lots of value-added elements, such as:

Low-equity requirement. There is nothing more precious to any business than working capital. They never have enough. With only a 10% equity requirement for existing businesses, the 504 offers capital preservation. In addition, most fees (closings costs, appraisal fees, environmental fees and points) can be financed.

20-25 Year Fixed Rate. The interest rate on our 40% of the debt loan is fixed for up to 20-25 years. When was the last time you talked about a 20-25 year fixed rate with one of your customers?

Current Rate. The current note rate on 504’s is 4.66%. Adding in the servicing fees, the effective rate is 6.45%.

TO RECAP: Only a 10% equity requirement. Fixed rate for twenty five years at 6.45%.

Do you think that would add value to a current relationship or get you in the door to a new client?