Why Deal Flow is a Must

Brokering deals is honest work, helping to connect lenders with borrowers, putting sources of capital and the need for liquidity together. When done correctly, the business of deal brokering is lucrative and rewarding. Lenders get a new client, borrowers get needed financing, and the broker is paid a fee for their services.

Brokering Deals

How to Get Referrals from Banks

However, like many worthwhile endeavors, it’s not quite as simple as it looks. If it were that easy, everyone would be doing it. First of all, being a deal broker means knowing finance and accounting and bringing that knowledge to bear in real-world situations. Familiarity with the lending appetites of a wide range of financial institutions is equally important. The ability to work with borrowers, many of whom do financing once only every few years is another necessity.

Ultimately, there are three requirements for deal broker success that overshadow the rest: deal flow, deal flow, and deal flow. In quantity and quality, deal flow is the number one predictor of success. Deal flow is the headwaters of the mightiest of all broker income streams.

Deal flow. Deal flow. Deal flow.

Let’s explore how to get the deal flow started, how to ensure it’s filled with the kinds of deals that can get financed (and get you paid), and how to keep that referral flow going for months and even years to come. The focus here will be on banks. Believe it or not, banks are the single largest repositories of unaddressed financing need anywhere in the country, no matter what country you’re in. And while that may sound like an indictment, it’s not.

Businesses need banks to conduct commerce on even a rudimentary level: accepting payments from customers and paying suppliers. It makes sense then that every commercial venture starts out doing business with a bank. Banks are constrained by what they can and cannot finance (by way of regulation) and further limited by what they will and will not finance by their own accord. Also take into consideration that the largest pools of businesses looking for financing are found on the books of your community bank, the accounts of your local regional bank, and on the customer roles of the largest banking behemoths in the country.

What is Deal Flow from Banks

How, then, to go fishing in these pools? How do I get access to financing opportunities that are sitting inside the banks right at this very moment? In simple terms: how to do I get a banker to maintain a line of sight on the unmet needs of his customers, how do I make sure they identify needs as they arise (needs that can’t be satisfied by the bank), and how do I get him or her and to call me, make the referral, and ideally an introduction to the potential customer?

There are six key steps to unlocking bank referrals:

  1. Identify someone inside the bank at the right level
  2. Once at the right level, identify someone who “gets it.”
  3. Once you have someone who “gets it,” find someone who cares
  4. Establish a personal connection
  5. Make the relationship formal
  6. Follow up and fine-tune

Let’s review each in turn:

Step 1- Identify someone at the right level

To get deal flow from someone inside a bank, you need to find someone who sees lots of potential deals. That means someone who either has regular contact with lots of commercial customers, or someone who is tasked with finding new borrowing customers for the bank. It’s typically not the bank president, department head, region head, or anyone else in management for that matter.

The curious thing about most bank employees is that the higher the experience level, the less contact they have with customers. Your goal then is not to get to know the boss. Ignore the boss. Your mission instead is to get to know the portfolio manager whose job it is to look after a host of customers, and has no other employee reporting to them. Likewise, your goal is to identify the business development officer whose sole task, day in and day out, is to find new clients for the bank. Those are the people that will find you deals. Take the time to find people at this level in these jobs inside a bank hierarchy.

Step 2- Identify Someone Who “Gets It”

Someone who “gets it” is someone who understands the needs of a customer as those needs arise, someone who truly understands the mission of the bank. And someone up to speed on the suitability and limitations of the bank’s suite of product solutions. When a banker sees a financing need and recognizes that the bank can’t help the stage is set for a referral. Not everyone inside a bank has that peripheral vision, but it’s possible to identify those who do.

Step 3- Find Someone Who Cares

Someone who cares is someone who will take the time and make an effort to help a customer, even if a solution is not immediately apparent. Some make careers in banks “protecting” the institution, and for them saying no is the final word. The better bankers protect employers as well, but for them, the client’s needs also factor into their approach. For them, the answer is always “It’s not something we can do, but let me see if I can find someone who can.” This is the type of banker who will take the time to understand the alternative lending space. A kind of banker that will develop at least a rudimentary understanding of the usefulness and benefits of factoring, asset-based lending, supply chain finance, purchase order finance, and a host of other specialty lending solutions. This is your person.

Step 4- Establish a Personal Connection

People do business with people they like. For people to like you, they need to get to know you. Once you find someone who has the three traits noted above, take the time to get to know them personally and build rapport. Showing a genuine interest in people, being respectful of their time, and treating them the way you want to be treated is a proven formula. In time this rapport will open the door to opportunities where you can demonstrate that you can be relied on and trusted. That’s a winning connection in any endeavor.

Step 5 – Formalize the Relationship

Formalizing a referral arrangement with a fee agreement can be tricky. Bankers may not feel comfortable earning a fee personally. Others may not want the fee to come to the bank for fear of criticism for having referred opportunities outside the institution in the first place. The best relationships find ways to work through these issues and to arrive at some referral arrangement that gives the banker an ongoing incentive to refer opportunities that don’t fit for their institution. Some creativity may be involved, but an open discussion will usually yield a solution that works for both parties.

Step 6 – Follow Up and Fine Tune
Following up involves several key steps:

  • Saying thank you for the referral, every time
  • Acting promptly on the opportunity
  • Getting back to the banker in due course to let them know the outcome
  • Keeping a record of all the deals you’ve seen and the result
  • Keeping up your side of a fee agreement promptly and reliable
  • Circling back periodically to recap results and level set for ongoing referrals. What’s working, what’s not, how can you support and help the banker’s referrals even better?

One referral is just that: a referral. Several referrals is a relationship. Begin with the end in mind, build that relationship, and good things will happen for everyone.

In Summary

  • Banks are the single largest source of potential deals that can be brokered
  • Getting referrals from banks depends on finding the right person and developing a formal relationship
  • Be responsive, keep good records, pay referral fees promptly, and have regular checkups on how things are going, and how to make them better.

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