Pub. 3 2015 Issue 1

www.uba.org 26 Keeping A Customer After You Turn Them Down For a Loan A s a banker, you have to say no a lot. With the increasing amount of government regulations surrounding small business loans, turning down small business owners is becoming more and more common. The problem is, the person sitting across from you is more important than just a potential loan customer. Understanding Small Businesses Total Client Value A study from Novantas states that a business’ Customer Lifetime Value (CLV) is five times higher than an average consumer. The combination of higher average deposits and other additional financial services makes businesses a major contributor to your banks success. When a small business comes in your office looking for a loan it’s important to not only evaluate their loan qualifications, but also evaluate their CLV. If you have to turn them away you may be losing more than just the loan revenue. In a recent survey we did here at Lendio, we found that 74% of small business borrowers would switch banks to get a loan. When a business owner is turned down for a small business loan, the first thing they do is look for other sources. A Harvard study found small business owners usually search three options—which will most likely include your direct competitors. If they secure the loan with one of them, you are very likely to lose their current and future deposits along with other financial services. Customer Lifetime Value Doesn’t Change the Facts Customer Lifetime Value for small businesses is an important variable to consider, but it can’t change your qualification require- ments. It’s true that small businesses are five times as valuable, but they are also more risky, so much so that you have to turn away 90% of them. Lending to under-qualified borrowers is a risk you cannot take, but the danger of losing a customer because of a turndown is also a serious concern. These factors are driving lenders to adopt new relationships and form partnerships with organizations that are beneficial to banks and their under qualified customers because they can accept the risks associated with lending to less-than-per- fect borrowers.