September 23, 2018
Consider the Case of Missoula, Montana
Toto, I've a feeling that we're not in Kansas anymore
Borrowers can come out of their storm cellars. Banks are back out looking for business again. In fact, they’re competing hard, particularly for the best credit clients. By definition, that means medical practices.
If there was ever a time to test the financial market, this is it. In the last year, borrowers have secured financing at loan-to-values exceeding 100%, obtained non-recourse financing and had banks completely waive prepayment penalties on long term debt. It's a great competitive environment.
Yet many of the same savvy administrators, who regularly get bids on everything from insurance coverage to janitorial service, stop short when it comes to the second biggest line item expense behind staffing, the cost of debt on their building.
- "We can't take the risk of upsetting our bank.”
- "Our bank was there for us when..."
- “Our bank quickly responds to any of our needs without a hassle. No one else will take care of us like that."
- "Our bank just committed to finance our next building at a high loan-to-value. We can't risk them pulling that approval. What other bank would do that for us?"
The answer is probably quite a few... and at improved rates and terms.
Here are the facts. According to CMAC’s Director of Finance, in the last few years, CMAC was engaged by more than 50 borrowers who already had loan proposals from their incumbent banks. Of those borrowers, there was not a single instance where the bank withdrew its proposal or financing. In fact, in approximately 90% of those cases, the incumbent bank improved its proposal while the remaining 10% maintained their then-current offer.
Those with especially good relationships with their banks, concerned how shopping their loan would impact those relationships, found this; those relationships actually improved with their banker who was grateful for the opportunity to keep the business - even at a reduced profit.
Consider the case of Missoula Bone and Joint (MBJ). A planned surgery center expansion meant refinancing and adding debt. MBJ went back to its long-time lender, and received a proposal that seemed in line with the market. The group had been assured that the new rate was its most competitive and the best they could do. Spencer was wary of testing the market and concerned about jeopardizing MBJ’s long-standing bank relationship. However, when MBJ’s CEO Sami Spencer visited with Orthopaedic Associates of Wisconsin (OAW) to view their facilities, she heard how OAW had improved what they thought was already the best financing available. OAW had hired CMAC to globalize the market by sharing with bankers the best proposals from their own bank from around the country.
Spencer wanted the best economic deal for her doctors and was encouraged by what she heard in Wisconsin. So she allowed CMAC to test the market to bring its globalized process to the local, regional, and national lenders of her market. From the first meeting, the challenge was laid out, "CMAC, we need to know you can do your job without upsetting our banking relationship".
The Bottom Line
The MBJ bank competed with over 15 other banks and lowered its rate to provide interest savings of roughly $1,000,000 over the term of the new loan. Most importantly, the bank (who wasn't even the lowest bidder) was very appreciative of the opportunity to maintain its relationship in the face of a competitive market.
Bottom line - don't be timid. Apply your best business practices to every line item and remember that behind Oz’s emerald curtain is a bank that needs and values your business.