Entrepreneurship Podcast post

Credit Union Business Loans with Mark Ritter

George Grombacher February 2, 2023

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Credit Union Business Loans with Mark Ritter

LifeBlood: We talked about credit union business loans, how banks are managing liquidity problems, how to be a good borrower and understand your lending agreements, and how small business lending is changing with Mark Ritter, CEO of MBFS, working to provide small business owners with the funding they need!

Listen to learn how to effectively communicate with your lender when you run into business problems!

You can learn more about Mark at MBFS.org,MarkRitter.com and LinkedIn.

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Our Guests

George Grombacher

Mark Ritter

Mark Ritter

Episode Transcript

george grombacher 0:00
Hi this is George G and the time is right. welcome today’s guest strong and powerful Mark Rader. Mark, are you ready to do this?

Mark Ritter 0:21
I’m ready to roll. Thanks for having me back.

george grombacher 0:23
Yeah, excited to have you back on Mark is the CEO of MB F. S, he’s working to provide American small businesses with the loans they need to grow their businesses. Mark, tell us about your personal lives more about your work. Why you do what you

Mark Ritter 0:38
do, sir, I am. Mark Ritter is the CEO of MBFS. And we are a company that’s owned by 13 credit unions, and work with over 100 credit unions nationwide, just focused on small business loans, and comer and their real estate investment loans. I have been involved in the credit union industry for 20 years now. So I think I’m officially an old guy now. And I really love the credit union industry, I grew up in small town, industrial Pennsylvania. And so I really love working with people on a community banking level, helping out everybody we can, as opposed to the mega Wall Street guys. And credit unions are a great fit for me personally. Because I get to sit down and work with businesses and the financial institutions to really just do what’s right for people. And not what’s just couldn’t can make a few extra bucks in my pocket. You know, it’s really rewarding when you when you see a small business grow, and you help fund them. We’ve driven past enough small businesses, that it really just annoys my kids when I say oh, we help finance that and we go in and see it. But I really that’s really the most rewarding part of my job.

george grombacher 2:10
Oh, I certainly imagine me tell your kids to appreciate the work that your dad is doing.

Mark Ritter 2:17
Yes, absolutely.

george grombacher 2:21
All right. So the world is is is obviously always changing. But interest rates have obviously moved quite a bit since last we talked and I’m sure that the whole world of lending has changed as well. What’s what’s what’s changed?

Mark Ritter 2:36
Well, it you know, my favorite superhero is bizarro. So it’s kind of like bizarro land in, in the comics, where every it was just like it used to be except the exact opposite. So the one of the dirty little secret that’s out there today is a lot of institutions are having liquidity problems. And that’s really what before we even talked about rates, that’s one thing that people really need to understand. And, you know, I don’t know if you remember, but you know, we used to have this pandemic, where the government was giving everybody money. Everybody got money in their pocket a lot. And, and it helped out businesses, it helped out people it helped out, you know, it was trillions and trillions. And when people got that they put it in their in local institution. Well, that’s all gone. So you’re you’re seeing that money flowing institutions really tightening up? Well, what’s the other thing that’s gone on in the past year, we have this little thing called inflation. So when I go to the grocery store to buy my bacon and eggs, and fill up my gas, my car with gas, it tends to cost a lot more. So you’re seeing deposits really flatline at institutions. Then the other piece that you’re seeing is expenditures, and those deposits are getting chewed up with people spending the money. So there’s not this free flowing liquidity that there used to be. So the first thing when you’re in the market for lending, that people really need to have that hard question is Tell me about your lending culture. Why are you lending today? Because nobody’s going to come right out and say, Hey, we’re out of money. No, we’re not lending today, but they manage it by tightening the credit box. They manage it by cutting off certain industries and removing things around the edge. They maybe limit new customers and focus on their existing customers. So in that’s kind of how us in the lending side, and when you’re having a little bit tighter liquidity start to manage that. You just don’t say no, no, we don’t have money to lend Have a good day, you kind of start tightening in around the edges. So we get, we have heard from many people who have some big bank relationships, where sometimes the mega banks are a little bit tighter. And they just say, No, we’re not lending to your type of business right now. Thank you have a good day. So that’s really that first piece of it is understanding, you need to have that hard conversation of are you in the market today? Or aren’t you and if you’re not find somebody else who will. So does that kind of make sense and understand why, you know, it also, is the reason for the first time in a long, long time, you could actually make some money putting deposits in an account, in a in a situate in your local savings institution. There are tremendous, tremendous deals out there to be had, where you can shop the marketplace. Now. Now, for example, I saw one from a credit union in Florida, that has a nation wide field of membership, meaning anybody can join, they were paying 4.75% on the money, and it was a three year certificate. But after 90 days, you could withdrawal it with no penalty. That’s earlier in the year, we were lending money out at three and a half percent. So so it’s really just completely flipped.

george grombacher 6:58
It seems like it’s certainly I’m 44 years old. And for as long as I’ve been a professional, the only game in town has been the stock market, there’s been not been opportunities to get to 5% rates of return in a money market account. Not that you can get that now, but we’re getting close. And maybe one day, we’ll be there again. So it seems like it’s an entire paradigm shift for generations of people who have never experienced that. So to a degree, it’s it’s it makes sense that that, that people aren’t necessarily depositing because of inflation and the lack of free money. Do you think that people are going to come around? Or what? What are your thoughts on that?

Mark Ritter 7:41
Yeah, you’re really seeing it, it’s with the Savers, if you’re if you’re in the lending business, you know, that competition for getting the people who have a couple bucks in their pocket, or for people who are maybe sitting out the stock market, or they sold a property and have some money sitting around, you can you can shop that and be very, very good. And and get a little bit of yield where before, you know you are shopping between 10 basis points and maybe 30 basis points, which when you look at the absolute numbers on what you’re getting, it really didn’t matter. It wasn’t worth the money to drive around or your time to search. But now you can really search for money. And what’s your but unfortunately, what you’re what you have seen is that has shifted over to the lending environment where money costs a lot more now. And, you know, we’re seeing, what you’re seeing is, you know, that prime rate keeps moving up, and which is causing all of your borrowing rates to keep going. And that really, you know, people people look at that and say, Geez, you know, wow, this is a lot more expensive. But if you’re running your small business, you really have to look at what’s the return on your profit. What’s the return on the product that you sell? What’s the return on the service that you sell? Yes, maybe you’re paying 7% for your money now. But you’re getting a pretty still getting a pretty good return on your business. The demand for services is still good. We were talking beforehand. I just got to see Penn State with the Rose Bowl when and when we spent my time out in California. Every hotel was full, every shop was full. Businesses are solid. So demand is good. Unemployment is good. So don’t let those higher costs stop your business. Now what I’m most excited about in my time right now, is interest rates are higher. invariably, they’re going to go down. This is when it’s important to understand the terms of the loans and the financing that you get. And I’ll give you the easiest example. Any anytime buddy goes through a credit union, particularly a Federal Credit Union, which is most of the marketplace, you’re never going to charge a prepayment penalty, you’re never going to get a prepayment penalty. And that’s not something people have, you want when when rates were three and a quarter percent, you were locking in your money, who cares if there was a prepayment penalty, they weren’t going any lower. Today’s market, if you’re paying seven, seven and a half percent, when rates invariably settled down, when rates drop down, you’re going to want to have the opportunity to refinance. So now it’s important to read that paperwork in your commitment letter, it’s important to read the loan docs and not just sign without understanding the terms of your commitment and give yourself flexibility for the future.

george grombacher 11:06
I want to talk a little bit about how to be a good customer how to be a good borrower, when things are not necessarily going your way instead of just putting your head in the sand. But I have a question before that you talked about how liquidity is is a challenge for a lot of institutions. Is that because because just just jokingly you think, Okay, well, the bank, they ought to have lots of money on hand, because that’s what they do is is their banks. But then I’m relatively aware that the banks take the money and they lend it out. And there’s all kinds of leverage and stuff going on behind the scenes. And it also strikes me that that as interest rates go up, if a bank did have a lot of money on hand, why wouldn’t they just keep lending out and an interest rate that was lower than everybody else was because then they would get all the business and when interest rates do eventually go down, they’d be even more well positioned?

Mark Ritter 12:10
Well, there’s also that, you know, banks loan out their deposits. But also don’t forget, the one thing that they do is invest their deposits. And a lot of institutions. What happened when they were flushed with all this cash, they bought investments. And these investments from a one year ago, from two years ago, are really low rates. So if they have an underwater investment, what do they have to do, they can either sell it for a loss, and recognize that loss today. Or they can hold on to it and, and just wait for that money. So a lot of this liquidity that you’re seeing, it’s really it’s not that they don’t have assets sitting there. They don’t have liquid assets, they’re sitting in low cost investments. Now there are borrowing opportunities out there from plenty of finance, you know, there’s not going to be you’re not going to see the bank and credit union and to see crash because they can borrow money. But borrowing money based off of your assets is considerably more expensive than lending off of deposits. So that’s why you can’t be a race to the bottom. Because your expenses are keep going up and up and up. And that base and cost of funds that you’re borrowing off of has gotten considerably more expensive.

george grombacher 13:50
Got it? Thank you for explaining that. All right. So you talked about how it’s important for us to read our terms and our conditions and to and to understand that. And I laugh because I wonder how many people actually do. And I’d be curious to see your your your perspective on that. And what, how should I handle it? If I’m a business owner that has a loan and things are not going great.

Mark Ritter 14:18
Our funny story in the lending business is generally the larger the loan, the less people actually read the documents. Hey, if somebody’s new to the business, and it’s their first business loan, and maybe it’s a truck loan or something so you know, though they’ll want to grow over every sense, but when somebody borrows $10 million, you just pointed the signature line and they sign off on it. So yeah, reading and you really have to understand what your obligations are, how they can put you how you can be put in default. Yeah, I Have a car loan, I have a mortgage, as long as I pay those mortgages, as long as I pay those monthly payments, they’re not taking my house, they’re not taking my car. In the business lending side, it is buyer beware, because the law assumes that you understand the terms of your loan, and you don’t have a lot of protections. And maybe they have demand provisions on your line of credit where they can just shut it off, or call it off and say, come pay us. And when things get tight, or people don’t want to blend into a certain industry, they call you up and say pay it off. And they usually do that when things are a little bit tighter. Maybe there’s different debt service coverage provisions, where you have to have financial, you have to meet financial ratios. And that’s something that people just sort of ignore and laugh off until it but it’s an easy way for a lender to try to get out of a deal. Even though you never missed one single payment. Maybe you you’re making your payments, but you didn’t pay your insurance, or and you or you have to unit pay your real estate taxes on time. There’s all these what we call non payment defaults that are available to lenders, that you really want to make sure that you’re aware of what they are, and you’re following what they do. And if you get into that bind ahead of time to understand what their positions are now, and one thing that you have to understand is what position the lender bit what position the lender is in as well. If it’s unsecured, at some point, you can say, Oh, well, what are you going to do shut down my business, you’re going to lose all the money too. So so they’re not in the business of losing money. But if they have plenty of collateral that could vary, you know, and they’re in a good position, you could be in trouble. You also have to understand that personal guarantee you signed means that even if your business is struggling a little bit, that they can come after you personally, and event and most states come after all of your assets, and really make your life miserable for years to come.

george grombacher 17:36
So we don’t want that. So instead of just, you know, not doing anything, it’s more it’s it’s a mark, George, you’re a borrower, things were a little tough, can you work with me?

Mark Ritter 17:50
It is much much easier for a lender to to deal with somebody ahead of a problem. If you see something happening than it is after you miss a few payments. That it is always easier to have those communications upfront, where we can work with you the loans in a situation where it’s performing. And really what you want to think about when you’re approaching your lender is, am I having an event that I just need some help through? Or is my Is this a trend and an inherent because you want to come up with a solution for them. I need help through these three months. And here’s what I have going on. You know, if you’re selling Beanie Babies and the Beanie Baby markets crashing, sometimes there’s not a lender much lenders can do if your inherent business is going down. And I’ll give you a good example. We had several businesses that had supply chain supply issues with Chinese district Chinese factories. When you hear about all of the things that were you know, the factories were shut down the government of China as well. At some point, there’s a business in America that’s waiting on these issues. It’s waiting on the products, it’s waiting on the clothes. And that’s causes some jam that a lot of these supply chain issues. Well that’s something that’s an event that you can work through and get back on track. But like you said, like I said, if you’re selling if you the inherent product is done, or you guys quite frankly don’t want to put in the hours i i have seen business owners that if maybe they don’t have the employees and they’re working 80 to 100 hours a day. weak. They’ve just said I’m out. But yeah, you definitely what I always tell people is be honest, be open, and look for solutions that get both parties how

george grombacher 20:15
we could just take that advice and apply it everywhere in life. I love it. Well, Mark, thank you so much for coming back on. I appreciate the insight. Appreciate the time, where can people learn more about you and how can they engage with MB Fs and who should be reaching out to you?

Mark Ritter 20:34
Sure. We love to talk with small business owners we love to talk with real estate investors. Even if you just are looking for some advice here in a situation that you that you want, maybe how to handle. If you’re not even if you need a new loan, you can connect with me on Mark ritter.com Ma, r k r i t t e r.com. Very active on LinkedIn but top on my website. And you can connect with the businesses and even if it’s just a little bit of advice you need on your current situation. We’re happy to help.

george grombacher 21:08
But if you enjoyed as much as I did show, mark your appreciation and share today’s show with a friend who also appreciates good ideas go to Mark ritter.com ma r k r i t t e r.com. And if you’re a small business owner, if you’re a real estate investor, you have a question about lending or saving and what we’ve been talking about today, reach out find him on LinkedIn as well and see if there’s an opportunity. Thanks again, Mark. Thank you. And until next time, remember, do your part by doing your best

Transcribed by https://otter.ai

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