As a banker specialized in the community association industry, I have paid close attention to the shifts of the banking industry since the beginning of the 2007 recession. The 2007 recession! Hmmmm… Has it ended yet?
One very significant point that the “man-on-the street” does not appreciate is the hyper level of new regulatory control that has been heaped upon banks since the beginning of the recession. As much of the “man-on-the-street” perspectives coalesce to; “a lot of Wall Street Bankers should have gone to jail”. The reality is that they did not. The government responded with enhanced bank regulations, which had the unintended consequence to restrict ease of access of capital to every-day people and businesses. Where does that leave you as a community association leader?
The bank regulators are formula driven versus being common sense driven. They, as individuals, also are nearly impossible to discharge from their positions so they are not worried about making business mistakes. For efficiency reasons the regulators perceive to be accurate, the regulators are focusing on the bigger banks. The bigger the bank, the more intense the regulatory oversight. A common perspective within the financial services industry is that the large banks have been privatized by the Federal government. Business decisions are being guided.
Enough of my whining and on to the answer for your community association. The point is that the platform for how banks operate has changed from how you have understood how they operate. Large banks have been interrupted due to regulatory inflexibility to operate in what one would consider as a “consumer service methodology”. I define a large bank as any bank over $5.0 Billion. A bank under that amount has been impacted by the regulatory environment but they still retain the “desire” to service the consumer. It has been my experience that banks over that level have largely capitulated to governmental demands.
So what is the best loan for your Community Association? It is likely a loan that is negotiated with a bank that is less than $5.0 Billion in Assets. It is a bank that is a member of Community Associations Institute (CAI) because they have decided to specialize in providing financing to this industry. The last and most important qualifier is skills. The first question that you need to ask the banker is: “How many years have you been a Community Association Specialized Lender?” If their answer is 7 years or less, keep shopping…
Why is the year 2008 an important pivot point? The regulatory impact is the key. A banker entering any business activity guided by the hyperactive pressure of the government’s regulatory pressure since the recession does not actually understand the community association industry. They understand government control.
If you find a banker that has been active in the market more than 7 years, you have a community association lending hero. A person that has many years of skills honed by the growth years, survived the recession and been managing against the regulatory environment.
A lot of this conversation does not seem to address the article’s title. The point is that there is much more to a community association loan than the interest rate. It is my experience that Community Associations are notorious for gravitating to everything that is cheap for the exclusive reason that it is cheap. The reality is that “value” is what is important, not “cheapness”. Getting good service and good quality products at a fair price is Value. If you deal with banks with bankers that have not been in the industry prior to 2008, chances are that you not getting a proper value. The banker may not understand your business (Association). The bank will not likely be the lower cost. The bank will most importantly be the providing the best Terms & Conditions because they have “Lawyered –Up” per their regulator’s requirements. Negotiating the Terms & Conditions of loan is far more important than negotiating a ¼ % interest rate difference between one bank and another. Terms & Conditions can cost the Association far more than a minor interest rate deferential.