Justifying Good Faith Deposits
Monday, May 11, 2009 by Mike Chatas
Late last week I was feeling pretty good about myself. I had just figured out a way to make an existing client’s real estate refinance transaction eligible under the SBA 504 loan program. It wasn’t easy, because SBA 504 loans can’t be used for refis. I still was not certain whether the client was completely on board with moving forward with us, so I decided to give him only 80% of what he needed to know:
1. That there was a way to get it done;
2. That the solution would involve some transfer of ownership in his real estate holding company; and
3. The solution would require a tremendous “sell job” to the SBA, but I was confident that we could get it done.
The Problem
Despite a fairly detailed proposal, the client wanted more specific information on how we would make the deal eligible; however, at the same time, he wouldn’t commit to moving forward with us. This makes for a difficult situation for both the bank and client.
From the Client’s Perspective
He wanted the “financial blueprint” before making the commitment to move forward with us (in the form of a good faith deposit).
From the Bank’s Perspective: We don’t want our financing solutions to be commoditized by having clients share them with competing financial institutions. As far as we are concerned, the solution is the bank’s intellectual property until we get a commitment back from the client in the form of a signed proposal and a $6,000 good-faith deposit.
The Solution
The solution is simple but not easy. We will wait patiently until the client is willing to
commit to our proposal (as detailed above) before we move forward with the solution and securing approvals. The waiting game is tough, but well worth it.
The Benefits
The client and Bank benefit in this scenario:
Benefits to Client
Conviction: Clients will attempt to find other banks or SBA lenders to do what we say we can do. By the time they come back to us, they are convinced that we (the bank) are the experts and know what we are talking about.
Concierge Service: I love telling clients that we are the “Zingerman’s” of banking. Once we get a good-faith deposit, we will assign a loan coordinator, analyst and closer to get the project underway. They will be taken care of, and we promise to make the process easy!
Solution: Clients are oftentimes amazed that we were able to help them to get to the closing table when most other banks were still sitting and scratching their heads. Trust me, there is no better feeling than providing and delivering on the right solution each and every time. They appreciate it!
Benefits to Bank
Value: Each and every time we come up with a creative solution, we are perceived as a true provider of financial services and not simply a bank. Good-faith deposits demonstrate that we have a strong interest in protecting our intellectual property. This sets us apart from the competition.
Time Management: I’m always okay with clients wanting to “shop” my proposals around. That’s fine; but if they are going to shop my commitments (where I’ve engaged my analysts, coordinators, loan committee, or board members), it’s going to cost them, because we won’t refund the good-faith deposit. Good-faith deposits ensure that we spend our time on working on real deals with committed clients, and not clients who have commoditized our business.
Client Experience: Many clients are surprised when they see a good-faith deposit agreement attached to our proposals. That being said, we almost always receive accolades from our clients via phone calls, email s, and hand-written letters. Knowing that a client has given us $5,000 to $10,000 prior to receiving a commitment ,makes us work harder, smarter, and conscientiously. It’s simple human nature. The client took a gamble on us; now it’s up to us to perform!
1. That there was a way to get it done;
2. That the solution would involve some transfer of ownership in his real estate holding company; and
3. The solution would require a tremendous “sell job” to the SBA, but I was confident that we could get it done.
The Problem
Despite a fairly detailed proposal, the client wanted more specific information on how we would make the deal eligible; however, at the same time, he wouldn’t commit to moving forward with us. This makes for a difficult situation for both the bank and client.
From the Client’s Perspective
He wanted the “financial blueprint” before making the commitment to move forward with us (in the form of a good faith deposit).
From the Bank’s Perspective: We don’t want our financing solutions to be commoditized by having clients share them with competing financial institutions. As far as we are concerned, the solution is the bank’s intellectual property until we get a commitment back from the client in the form of a signed proposal and a $6,000 good-faith deposit.
The Solution
The solution is simple but not easy. We will wait patiently until the client is willing to
commit to our proposal (as detailed above) before we move forward with the solution and securing approvals. The waiting game is tough, but well worth it.
The Benefits
The client and Bank benefit in this scenario:
Benefits to Client
Conviction: Clients will attempt to find other banks or SBA lenders to do what we say we can do. By the time they come back to us, they are convinced that we (the bank) are the experts and know what we are talking about.
Concierge Service: I love telling clients that we are the “Zingerman’s” of banking. Once we get a good-faith deposit, we will assign a loan coordinator, analyst and closer to get the project underway. They will be taken care of, and we promise to make the process easy!
Solution: Clients are oftentimes amazed that we were able to help them to get to the closing table when most other banks were still sitting and scratching their heads. Trust me, there is no better feeling than providing and delivering on the right solution each and every time. They appreciate it!
Benefits to Bank
Value: Each and every time we come up with a creative solution, we are perceived as a true provider of financial services and not simply a bank. Good-faith deposits demonstrate that we have a strong interest in protecting our intellectual property. This sets us apart from the competition.
Time Management: I’m always okay with clients wanting to “shop” my proposals around. That’s fine; but if they are going to shop my commitments (where I’ve engaged my analysts, coordinators, loan committee, or board members), it’s going to cost them, because we won’t refund the good-faith deposit. Good-faith deposits ensure that we spend our time on working on real deals with committed clients, and not clients who have commoditized our business.
Client Experience: Many clients are surprised when they see a good-faith deposit agreement attached to our proposals. That being said, we almost always receive accolades from our clients via phone calls, email s, and hand-written letters. Knowing that a client has given us $5,000 to $10,000 prior to receiving a commitment ,makes us work harder, smarter, and conscientiously. It’s simple human nature. The client took a gamble on us; now it’s up to us to perform!