1 00:00:00,970 --> 00:00:05,830 This section will provide you with an overview of how to get the best pricing you can all go through 2 00:00:05,830 --> 00:00:12,960 a list of ways to reduce your interest costs I wrote a commercial customer profitability system for 3 00:00:12,960 --> 00:00:15,160 loan officers over 20 years ago. 4 00:00:15,300 --> 00:00:18,840 I've been analyzing and approving loan pricing for much of my career. 5 00:00:18,840 --> 00:00:22,140 Here are some tips for getting the best loan pricing. 6 00:00:22,200 --> 00:00:24,190 I said it earlier and I'll say it again. 7 00:00:24,300 --> 00:00:29,310 Other services you have at the bank especially your deposits are very valuable to the bank. 8 00:00:29,370 --> 00:00:31,190 It drives most of the profit. 9 00:00:31,290 --> 00:00:37,110 The stock price of a bank is driven more by their deposit base than any other factor including loans. 10 00:00:37,110 --> 00:00:39,960 Banks may require you to keep some deposits with them. 11 00:00:39,960 --> 00:00:43,700 These deposits are called compensating balances by bankers. 12 00:00:43,860 --> 00:00:47,880 Those balances increased profitability by reducing the risk of loss. 13 00:00:47,880 --> 00:00:52,320 If you can't pay back the loan and because your deposits are a cheap source of funding for your loan 14 00:00:52,320 --> 00:00:57,090 and other loans it never hurts to ask if the lender will lower their rate if you move more deposits 15 00:00:57,090 --> 00:01:03,920 to them or use more services asking for a shorter repricing term balloon term or amortization term should 16 00:01:03,920 --> 00:01:05,990 reduce the interest rate on your loan. 17 00:01:05,990 --> 00:01:11,750 Think of banks as distributors who buy and sell funds when they sell funds to you for 10 years as a 18 00:01:11,750 --> 00:01:12,380 loan. 19 00:01:12,440 --> 00:01:15,720 They have to buy or borrow money that's locked in for 10 years. 20 00:01:15,770 --> 00:01:20,870 Their cost of funds or cost for that money go up as the length of the term goes up and they pass that 21 00:01:20,870 --> 00:01:26,470 cost along to you shortening the advertiser Asian period also reduces their chance of losses. 22 00:01:26,480 --> 00:01:29,300 If you have trouble paying off the loan in the future. 23 00:01:29,300 --> 00:01:34,190 On the other hand don't reduce the amortization period so much that it jeopardizes your current cash 24 00:01:34,190 --> 00:01:35,570 flow. 25 00:01:35,580 --> 00:01:41,100 There are three major loan costs that you can negotiate the origination fee the interest rate and the 26 00:01:41,100 --> 00:01:43,710 prepayment fee in home mortgage lending. 27 00:01:43,740 --> 00:01:48,540 Reducing the interest rate on a loan by increasing the origination fees or points as are called with 28 00:01:48,540 --> 00:01:52,320 home loans or increasing the interest rate to reduce the origination fee. 29 00:01:52,320 --> 00:01:53,880 Happens all the time. 30 00:01:53,970 --> 00:01:55,860 Business loans are no different. 31 00:01:55,860 --> 00:02:00,960 If you expect to pay off the loan soon you can reduce the origination fee by accepting a higher interest 32 00:02:00,960 --> 00:02:01,560 rate. 33 00:02:01,590 --> 00:02:03,570 It may save you in the long run. 34 00:02:03,570 --> 00:02:05,820 Don't forget the cost of prepayment fees. 35 00:02:05,910 --> 00:02:11,100 If you are likely to pay off the loan soon either through cash flow or by the sale of the asset. 36 00:02:11,100 --> 00:02:15,970 Make sure the prepayment fee isn't too expensive or can be waived under certain conditions. 37 00:02:16,020 --> 00:02:21,210 Once again lenders are more willing to reduce prepayment fees with shorter loan terms or reduce the 38 00:02:21,210 --> 00:02:23,130 fee with higher interest rates. 39 00:02:23,130 --> 00:02:27,600 I wouldn't get too aggressive with this because most lenders already underpriced the prepayment fee 40 00:02:28,560 --> 00:02:29,820 like moving deposits. 41 00:02:29,820 --> 00:02:35,610 You can also reduce the loan cost by refinancing loans at other banks with the lender you are now approaching. 42 00:02:35,640 --> 00:02:40,260 If you are trying to get a commercial real estate loan they would be very interested in your operating 43 00:02:40,260 --> 00:02:41,380 line of credit. 44 00:02:41,400 --> 00:02:45,690 The line usually comes with operating cash accounts and other business services. 45 00:02:45,690 --> 00:02:50,040 Refinancing would also make sense if loan rates have gone down since you last took out the loan at the 46 00:02:50,040 --> 00:02:56,370 other bank your business accounts aren't the only accounts you can move to reduce your loan costs. 47 00:02:56,370 --> 00:03:01,680 Moving your personal accounts also increases your overall customer profitability to the bank which gives 48 00:03:01,680 --> 00:03:07,290 your loan officer greater flexibility in reducing your loan cost moving business operational accounts 49 00:03:07,290 --> 00:03:11,730 like the line of credit and personal accounts also signals that you're making a longer term commitment 50 00:03:11,730 --> 00:03:14,490 to the bank which increases your lifetime value to them. 51 00:03:14,580 --> 00:03:21,010 Once again the more you give the more you get improving your financial health isn't something you can 52 00:03:21,010 --> 00:03:24,160 do overnight but over time it will reduce your pricing. 53 00:03:24,210 --> 00:03:26,950 The financially stronger you are the less risky you are. 54 00:03:26,950 --> 00:03:28,930 Which means you get a better pricing. 55 00:03:28,990 --> 00:03:33,710 I'll explain exactly how lenders assess your riskiness and the underwriting section of this course. 56 00:03:33,850 --> 00:03:38,800 Your timeliness and completeness in your responses to the application process also build your credibility 57 00:03:38,800 --> 00:03:39,560 with the lender. 58 00:03:40,750 --> 00:03:46,410 I wish I had a dollar for every time a loan officer justified low pricing on a loan by saying The customer 59 00:03:46,410 --> 00:03:48,700 is a great referral source. 60 00:03:48,700 --> 00:03:51,630 It's like the punch line of a customer profitability joke. 61 00:03:51,790 --> 00:03:56,860 The officer knows the loan modeling system says the customer's profitability which includes measures 62 00:03:56,860 --> 00:04:01,660 of the customer's riskiness doesn't need the return usually required for the lender to invest the loan 63 00:04:01,660 --> 00:04:04,950 funds as a last act of desperation. 64 00:04:04,990 --> 00:04:09,790 The officer tries to point out the profits or at least potential profits from other referrals. 65 00:04:09,790 --> 00:04:15,040 The customer has made to the bank actually referring customers to the lender can improve your chances 66 00:04:15,040 --> 00:04:15,930 of lower pricing. 67 00:04:15,970 --> 00:04:18,190 It makes the pleas of the officer more believable.