There’s no question that the past few years have been a difficult period for banks — perhaps the most difficult since the Great Depression. But so far in 2012, there have been some encouraging signs, for the broad economy and for community banks in particular.
Given this, many banks are starting to peek their heads out from beneath their shells and resume more aggressive marketing and new business development efforts that have been shelved the past few years while they hunkered down in survival mode. In doing so, some are targeting niche markets for small business lending, including nonprofit institutions and professional practices.
Historically, these have both been profitable niches for many community banks. But taking advantage of new lending opportunities in these niches requires a dedicated focus and unique marketing strategies.
First Step: Cultivate Referral Sources
The first and most basic strategy for targeting these niches is to cultivate referral sources that can make introductions to nonprofits and professional practices (specifically, medical and dental professionals).
This is really no different from your referral source strategy for getting introductions to any type of small business. If you have built up a database of small business referral sources (like accountants, attorneys and other centers of influence for small business owners), comb through it to find the ones that might have relationships with nonprofits and professional practices.
Next, look for opportunities to get actively involved with some of the nonprofit institutions in your community. This may include churches and synagogues; hospitals; private and charter schools; community food banks; and groups that support wounded veterans, to name just a few. Organizations like these often seek out bankers to serve on their boards of directors, especially in smaller communities.
Some community banks require that their lenders be actively involved in at least one nonprofit, allowing them to choose a cause and organization they want to support and serve on work time. This may help give your bank a foot in the door when it comes to identifying and taking advantage of new lending opportunities at the nonprofits, while also supporting causes that your lenders are passionate about.
Similarly, your bank should look for opportunities to participate in civic organizations like local Chambers of Commerce and Lions and Rotary Clubs. Both nonprofits and professional practices tend to be active in these organizations, so they can provide fertile ground for networking and drumming up new lending business.
Medical and Dental Professionals
In today’s post-healthcare reform world, there are more opportunities than ever to market to medical and dental professionals.
For example, you could host a half-day seminar for area medical practices on the impact of one or more provisions of healthcare reform on the practice. For that matter, you can host seminars on anything that’s practical, timely and relevant for medical and dental practices: personal financial planning and wealth management, tax law, sales and marketing, or estate planning, just to name a few.
Locate and hire the presenter, book the facility (or maybe you can hold the seminar at your bank if you have the right space for it) and create high-quality, personalized invitations you can send out to qualifying professional practices in your community. Seminars like this provide a great opportunity to network and interface with prospective new borrowers without having to compete with other lenders at civic events.
Another idea is to build relationships with companies that provide services to professional practices. Medical record imaging is a good example: Most professional practices today are migrating to Electronic Health Records (EHR) and there are a number of service providers that are helping them do this. Such companies are an excellent referral source to help you get your foot in the door of their professional practice clients.
Dental practices, in particular, have proven to be good borrowers for many community banks. While new practices may carry high levels of debt in order to finance the latest high-tech equipment needed to outfit a dental practice today, default rates for dental practices tend to be low, so they can be attractive if you can make the numbers work.
List vendors like Dun & Bradstreet sell prospect lists that can help you identify nonprofit institutions and professional practices that might be good candidates for new loans. You can get very targeted in your list acquisition efforts, specifying such criteria as sales volume or annual revenue, number of employees, ZIP codes and NAICS codes, and even profitability, among other factors.
Dig into Financial Statements
Beyond marketing strategies like these, you can also uncover potential new lending opportunities with nonprofits and professional practices by digging into their financial statements.
For example, medical and dental practices may have put off the purchase of fixed assets for the past few years while they tried to ride out the recession. One way to spot this is to compare the relationship between accumulated depreciation on the balance sheet with the net book value of fixed assets. If the latter is significantly less than the former, the practice may be in need of an equipment upgrade.
Having this kind of information in hand enables you to be proactive by approaching professional practices about lending opportunities to meet their needs for capital expenditures. Even better, go one step further by pre-approving a practice for an equipment term loan. Otherwise, the equipment vendor may get the first shot at the financing.
Nonprofits and professional practices with maturing balloon payments are another place to look. If they bought or refinanced commercial real estate with a three- or five-year balloon payment back before the bubble burst, these loans will be maturing soon. You can spot loan maturity dates on CPA-pre-pared financial statements or simply ask the business for a debt maturity schedule. In some jurisdictions, maturing loans can even be identified via public records.
Due to regulatory requirements, the nonprofit’s or professional practice’s current bank may not be able to refinance the loan – or it may simply choose not to due to a lesser appetite for commercial real estate (CRE) loans. Or maybe the business wants to refinance to lock in a low fixed interest rate. Either way, maturing balloon payments could signify new CRE lending opportunities.
Please contact us if you’d like to discuss these and other strategies for targeting nonprofit institutions and professional practices in more detail.