For 32 years, Rob Hall worked in agricultural banking in Ontario – sometimes at the very top of the food chain, and always on the management side of the desk.
Now, he’s switched sides. He’s on the farmer’s side. And he’s eager to talk in plain language.
In February, Hall launched BankSpeak, a business finance consultancy he runs out of his home office in Waterloo. His mission is to help farmers and other business people decipher the words and terms that come out of bankers’ mouths – such as “AML”, “non-recourse” and “balloon payment”.
Their meanings are not always obvious, but they’re vital for business transactions.
“I know the deep, dark secrets,” says Hall, and only half-jokingly. “After you do something for so long, it’s muscle memory, and you don’t realize how much you know and how much you could help other people. I used to translate what is often called ‘farm speak,’ that special language of farm acronyms and terms, for banks. Now I translate bank speak for farmers.”
So far, his clientele is a 50/50 farm/non-farm mix. On the farm side, among those he‘s worked with are producers grappling with the complexities (finances, restructuring debt, etc.) of buying out partners, and others who had financed their equipment with too short of a payback. He charges hourly for his services, rather than altering it depending on the size of the transaction involved.
Hall’s keeping his eye on trends, especially those being driven by cheap money. One of the trends he’s seeing is the growing practice by traditional banks to reposition clients with smaller portfolios – around $100,000 – from commercial to small business. That’s resulting in more clients being considered small business…but the banks aren’t adding any additional support staff to manage the newly repositioned accounts.
“It’s a high-volume, low-margin situation,” says Hall. Margins which used to be around three per cent have now dwindled to as low as 0.9 per cent, prompting banks to be conservative with their staffing, and staff to perhaps be less experiencing managing bigger portfolios.
For his part, Hall is open to sharing with producers what he’s learned from his three decades of working with them. Here are what he calls “seven deep, dark banking secrets.”
1. Interest rates and fees are not set in stone.
Sure, a bank has interest rate guidelines. But, after staff put all of your ratios and financial information into various computer programs, at the end of everything, a bank will try to get as much interest as possible.
Hall’s advice: Negotiate with them based on your other business with them, longevity of time you have dealt with them, and competitive pressure. You’d be surprised how quickly ¼ per cent will disappear from a supposedly firm deal, when a bank across the street is mentioned.
Like interest rates, fees should be considered negotiable. A lot of banks have fee targets for their lending staff, and the bank staff’s bonus is often based on how well they do meeting them.
Hall’s advice: Negotiate!
2. Banks don’t always need — nor do they read – all of the information they ask for.
Some banks feel that more paper and reporting makes a transaction a stronger deal.
Hall’s advice: More reporting will not make any deal better, and too much reporting is simply not looked at in any great detail. Bankers simply don’t have time. So, question the reason and rationale for all reporting requested, and how it impacts the credit risk of your account. More reporting sometimes allows a bank to justify a higher monthly fee, even if they are not actually reviewing what they’re supposed to be reporting on.
3. Your relationship is with your local representative, not your bank.
You may think that you have a relationship with your bank. Not true, says Hall. You have a relationship with your contact there, only. Beyond the branch, you are simply another account.
A deal you’re putting together can be viewed differently depending on the presentation of it, and the reputation of your rep within the bank.
Hall’s advice: Maintain an open, good relationship with your local rep and ask to meet his or her boss so that you have at least two contacts.
4. Personalities play a big part in banking.
All business transactions should be based on sound review and impartiality. But sometimes the bank rep’s personality can get in the way of a good deal. Be sure you feel confident the rep is prepared to put the work required into a deal and fully understands it.
Hall’s advice: Ask your rep lots of questions and ask candidly if he or she supports your deal. If they don’t, ask to see their boss (whom you have already met – see #3)
5. A negative note on your file is hard to delete.
When a written comment is made on your file by a person at a high level, even if it is blatantly wrong, it will taint your file. It’s hard to remove. And if the boss made the mistake, no one wants to be the person who corrects the boss.
Hall’s advice: Ask directly if the issue is with the local branch or at a higher level. If so, what is the issue or concern, and be prepared to address any errors. Failing which, it may be time to seek another lender.
6. Beware comparing pricing based on spreads over cost of funds. Not all banks’ costs of funds are the same, and prime or base rate are not the same.
If you are quoted a price based on a spread, such as one per cent or 100 bps, question the base for it. Historically, prime was prime was prime. But in reality, not all banks or lenders have the same prime rate. Often it may be called a spread over cost of funds. Each lender will have a different cost they have to pay for the funds they are lending to you. Base rate is NOT prime rate – base rate is often a lender’s cost of funds, plus a bit extra.
Hall’s advice: Ask what your lender’s cost of funds is, or what their current prime or base rate is. If they won’t (or can’t) tell you their cost of funds, ask what their public rating is, if they are rated. Generally, a better rating means a lower cost of funds.
7. Errors happen.
Read all your documents carefully, especially if they are from a smaller lender and they are produced from a word processor rather than a stock document. Errors frequently occur, and they can affect your legal position on such things as penalties.
Hall’s advice: Anticipate errors; ask to see how penalties or fees are calculated if something goes wrong.