How did Our Closure Rate get so High and How Can Yours Too?
By Steve Mariani
If you read last month’s newsletter then I’m sure some of those numbers were as shocking to you as they were to us. This month we explain how and why we consistently achieve such a high closure rate. First concept to understand is the buyer bargaining power in any relationship. Here’s how one writer describes it:
Bargaining Power (one of Porter’s Five Forces)
By James Wilkinson on July 23, 2013 in WikiCFO
Buyer Power – Determining Factors Buyer
“Several factors determine Porter’s Five Forces buyer bargaining power. If buyers are concentrated compared to sellers – if there are few buyers and many sellers – buyer power is high. If switching costs – the cost of switching from one seller’s product to another seller’s product – are low, the bargain power of buyers is high. If buyers can easily backward integrate – or begin to produce the seller’s product themselves – the bargain power of customers is high. If the consumer is price sensitive and well-educated regarding the product, buyer power is high. If the customer purchases large volumes of standardized products from the seller, buyer bargaining power is high. If substitute products are available on the market, buyer power is high.”
Here’s what this means to you and me: Larger acquisition transactions typically require financing. Once the buyer enters into a purchase agreement, he or she becomes the seller. Sounds confusing but here is the simple version. Buyer now must sell a lender on the fact that he should be approved and has the financial ability and experience to run this new business. This can be the hardest sale of the entire transaction. You and the buyer are selling, selling until you secure that loan approval. One small slip-up can cost you a huge time delay and we all understand what that can mean to your deal.
At Diamond Financial, our philosophy is different, actually the opposite of that described above. Here’s why: We originate almost 100 million dollars a year in SBA loans for acquisitions and we are called on by lenders almost weekly asking for some portion of our volume. We never say no! What we say is that we would welcome the opportunity to supply $10 or $15 million but we have specific terms under which that can happen. We begin by explaining the types of deals we produce, and then continue with our lender expectations and how we want the loan process to work. This is where we turn the table, as they now understand that we will provide the credit guidelines, timelines and service level demanded by our firm to be able to supply $10+ million. If they cannot conform to our standards, we cannot create a lasting relationship with this lender.
We always have the ability to leave that relationship because we are the customer (buyer). One of our biggest bargaining powers (from the book “the art of the deal”) is the ability to leave the transaction. We have other lender relationships already in place so we continually push the bar higher and higher for our Mainstreet transactions. Many times we have witnessed an increase in a lender’s goodwill policy, along with other underwriting criteria improvements, all in an effort to keep our volume with that specific lender at a high level.
How can we do this? It’s easy… be the experts and know the rules better than anyone else. Recognize immediately the difference between lender policy and an SBA rule and do not allow variances between the two. Lenders can decline our loans so please don’t read this as we never receive a decline, but we typically do not receive two from any single lender during any given year. Keep in mind, we are the buyer and we have many choices.
It is this buyer bargaining power that sets us apart and allows us to demand a much higher level of service and attention on each transaction. Being one of the largest loan production companies in the nation we have become the interviewer and the lender becomes the “possible” employee.
I have always felt for many reasons that there needs to be a middleman or third party on the lending side that truly represents the buyer’s (and transaction’s) best interests. My biggest reason is when a buyer submits an application directly to a lender, that lender’s first reaction is to structure (or re-structure) the loan request in a manner that can be approved at their shop. They twist and turn that deal into something they think their people will get comfortable with, and then approve it with no consideration whatsoever to the seller or any of the other parties involved. They end up with a loan approval that the neither the buyer nor seller can work with, effectively as useless as a late-stage declination.
Consider for a minute if a third party structures the loan (to best benefit all the parties involved) upfront and complies with the SBA rules but then invites a lender to participate? That’s exactly what we do every day and it’s our full time job. Our real expertise is in knowing which lender is most appropriate for a specific transaction and how a specific structure is in the best interest of everyone involved.
So now that we’ve shared how we’ve increased and maintained a very high closure rate, let’s talk about raising yours. Diamond Financial has been building broker success for over 20 years and we share all our secrets to making that happen. Maybe it’s just time you give us a try and experience the real difference as our management hasn’t changed since we began, in 1996. We always guaranty an answer within 3 days of a complete review of your transaction. Put the power of our loan volume to work for your office and let’s get your closure rate to 94%. It’s just a single call away.
Putting your clients first and providing the highest level of service can only be achieved by staying on top of our industry and understanding the entire transaction from their perspective. We consistently utilize each and every rule to the best of our ability to benefit the overall transaction. We have also become a resource for many national SBA lenders for information on rule changes and share on how other lending sources are interpreting them.
AskDiamond@easysba.com is always available for specific questions regarding this or other SBA rules.