Combined arms is a warfare strategy used by the military which seeks to integrate complementary assets in a common mission to achieve decisive effects.

It turns out a similar strategy is being used by big banks these days.

On the front lines, a good military (bank) wins when it effectively combines complementary assets as most militaries (banks) are dealing with the same basic commodities — in this case, money.

The bankers that win and gain market share are the ones that can best effectuate their strategy and work with different elements within and outside of the bank. It should also be said that no bank, or army for that matter, could have foreseen the deadly coronavirus pandemic given its velocity of transmission.

The nation’s biggest banks, however, will be better positioned to fight the pandemic than smaller banks. This is why knowing how to combine arms is paramount.

In banking, the knockout punch is leadership’s ability to navigate the ebbs and flows of “good” client relationships through business cycles: The troughs are asset-based lending and workouts, booms are commercial banking, then peaks are investment banking.

Thus, with the right relationships, the bank maximizes shareholder value by stretching the profit that can be generated through each customer relationship. In other words, the better assimilation with infantry, air support and special forces working in tandem and delivering a seamless customer experience, the lower likelihood of switch.

The battles take place in each region, around the country and leaders who win are decisive in their actions while understanding the elements to ultimately solve clients’ needs.

This is why senior bank executives need to use a military-style strategy when thinking about their own playbook. The similarities exist between financial services and armed forces with respect to command organizations that effectively decentralize decision making around objective-driven orders.

It’s all about the front-line ground game and technology — protect your markets and innovate. Large commercial banks and the military are both execution-based businesses that rely on large ground forces and market saturation. Moving forward, a great bank wins on tactics and technology but loses on systemic risk. In today’s market, that risk manifested as the coronavirus pandemic.

Think about the major money centers in America and how saturated they are with banks given the surrounding businesses and communities. Bankers form their strategies around these hubs.

Most banking and war strategies are still formed around basics of controlling land mass and deploying human capital. Banks are only as good as their market manager and battlefield commander.

Also similar to a military strategy, commercial banks take a city-by-city approach to establishing their positions, via retail banking to control deposits. Banks evaluate markets by cities or regions and need to deploy resources — people and capital — based on strategic importance. The bigger the market, the more strategic.

Usually the bank with air superiority (integrated asset-based lending capability) wins as it is a dimension that most banks don’t effectively use. It’s similar to how the U.S. Air Force initially started as a division of the Army to help serve and provide cover until time of separation into its own branch. Likewise, only recently in the history of banking has the asset-based loan product become a separate business within banks.

When asset-based lending was introduced, it was meant as a product within a bank rather than a separate business unit. Asset-based lenders within a bank have evolved to spend just as much time operating independently as they do covering their commercial banking footprint. Eventually, they branched out and charted their own course.

Special assets is probably the most recent addition to banks’ operational strategies. Taken together, commercial and industrial lending, asset-based lending and special assets creates a powerful triangle offense. It allows banks to onboard clients to commercial banking, transition to asset-based loans and then exit via special assets, if need be.

However, banks can’t rely solely on one group in times of economic distress. Additionally, due to the decentralized nature of banks, each region is covered by a different commercial and industrial lending “army,” and operates as its own silo similar to today’s U.S. military.

Each of the nation’s largest banks has an asset-based lending and special assets coverage group overseeing several of its commercial banking centers within each region. This is actually how banks are structured — smaller supporting groups providing coverage to the entire commercial banking group that controls most of the clients or assets.

However, the coronavirus pandemic changed the perspective in that it caused bankwide stress that asset-based loans and special assets were not in immediate position to cover for an entire bank, but rather key regions due to natural limitations. This will change fairly soon once the panicked market thaws.

Systemic risk like the current global pandemic will likely be incorporated into bank and military planning in the years to come. For right now, the banks that use the “combined arms” tactics should be best positioned.

See full article here.

In the 1980 movie, “The Empire Strikes Back,” the “dark side” (non-bank ABLs) forces mount an attack against Luke Skywalker to strike back. Much like in the movie, the “Empire” has been waiting to strike back against the banks (including bank-ABLs). In my most recent article, “Up in the Air,” I discussed the freezing of the ABL market due to the COVID-19 pandemic. COVID-19 provided the catalyst for a years-in-planning battle that is going to take place once the ABL market unfreezes in the next few months. The non-banks lenders have been preparing for quite some time for this momentous battle. What is unique and perhaps not surprising is that during the past few years, the central recruits to the proverbial “dark side” have been bank-ABL professionals.

The non-bank lending world was built on the back of regulation that impacted bank-ABLs after the last recession. These groups formed and grew starting around 2010. Most of the early founders of the current non-bank lending industry were all hired or acquired from people trained at Foothill, CIT, and GE, among others. What is interesting to note is that while the early founders of today’s non-bank world came from non-banks, the latest last wave of “recruits” came directly from the bank-ABLs. This hiring splurge over the past years was very much targeted towards bank-ABLs to recruit talent before a market crash. These hires solidified national footprints and teams for the major non-bank ABLs.

Make no mistake that right now, non-bank ABLs are fully staffed and will be ready to go once the ABL market unfreezes and stabilize their portfolios. This is not a mistake as we are about to experience a feeding frenzy once the non-banks get stabilized from the impact of COVID-19 and can start helping banks exit credits. Bank ABLs had a front-row seat during the last economic cycle watching commercial bank C&I groups book assets, knowing only so many would become transfers versus kick-outs. Many had a preview of what was surely to come and purposely made the jump before any catalyst taking place. The collision course of banks, both C&I and ABL, with non-banks started well before 2019. That said, 2019 was a seminal year as banks fully realized that 2020 was an election year, and the economy was in extra innings. To put it bluntly, senior executives expected something, although maybe not the unexpected – such as a global shut-down.

No one forecasted a pandemic, but the nation’s largest banks certainly had a recession in mind and started being vigilant by pushing out lower-rated credits. This is another reason why certain special assets groups were downsized as banks tried to get ahead of a curve they saw coming to some degree. A depression is different from a recession, which is what banks were planning for by proactively pushing out clients and reducing expenses as part of the preparation. Non-banks saw a starker trend and aggressively started recruiting bank-ABL professionals to join them. What we are about to witness is the results of a multi-year recruiting and capital raise strategy across the non-bank landscape.

Battles are fought and won depending on the arena, and we are entering one where the lowest cost is not going to prevail against bank capital preservation and OCC monitoring. Banks are going to be at a stark disadvantage – look no further than the stress placed upon them to administer government SBA capital. The non-banks truly do offer structure and flexibility in return for the cost. They are also more prolific in terms of stretching and lending against non-liquid collateral. Some job movements should be expected in any environment. However, a significant shift took place well in advance of this recession by career bank-ABL professionals trying their hands on the other side. The past year has been akin to the trade deadlines in the sports world, with big names being announced each week.

The bank-ABLs have strongly controlled the ABL market share over the past few years, and they are about to experience brutal competition from non-bank ABLs given the capital that came into the space and consolidation.  You can call the non-banks “Imperial Forces” given their need to recruit from banks and the banks the “Rebel Alliance.” The best way to do that is to go after talent, and that is what is happening. The beneficiaries are known to all.

The past few years, Great Rock, Encina, Wingspire, MidCap, Ares, White Oak, Gibraltar, CIT Northbridge, and even SG Credit have recruited heavily from the bank-ABL workforce. The bank-ABLs that lost talent are the leaders, and it is not that there is anything wrong with them. Rather it is a chance for skilled professionals to put their skills to work in an unregulated environment. Talk to any good former bank-ABL executive, and you will hear stark differences in the environment, atmosphere, and velocity of deals. You will also hear about the pressure that comes with it as the leash is not nearly as long outside of a bank, and the selling proposition is starkly different.

Capital cannot be a loss-leader for treasury services outside of a bank. It’s an intuitively hard challenge for folks who are used to competing on paper-thin margins to lock up the treasury in return for giving away the rate. We are also now dealing in a market and regulatory environment that makes it very hard to get deals done. Every person always dreams that the grass is greener on the other side. Sometimes it is, and sometimes it is not; however, in the past few years, many bank-ABLs took a chance and made a significant change. The seminal challenge will be adjusting to yield and structure versus pricing and platform.

The change is not for everyone, given the pressures and rates that will never compete with a bank, but the freedom and flexibility to operate in a non-regulated environment are there. The ABL business has always been a zero-sum game between bank and non-banks, and right now, we know where the BDOs are going. After years of bank-ABLs flexing their muscles, a new dawn is finally upon us. This is the first time in years where finance companies finally have a distinct advantage – talent, capital, regulatory and national platforms. They have a tornado as a tailwind working in their favor for years to come. What is interesting is that there is a symbiotic relationship right now in that banks significantly and quickly need to exit credits to free up capital. In the end, the banks are going to be stronger than ever, but right now, the “dark side” is where the fun is going to be.

Link to article here.

Aftermath means the consequences or aftereffects of a significant unpleasant event, like Covid-19. The financial system is going to experience this first-hand. No firm, whether it be bank or non-bank, will be left unscathed. The author is purposely writing this article now in order to predict that one of the many untold stories will be that the nation’s biggest banks were expecting the unexpected as it pertains to their middle-market C&I and ABL portfolios.  Clearly, no bank in the country could have imagined a complete shutdown based on a virus, but what they could and did imagine was a severe depression irrespective of the cause.  Not only were they expecting, but they were prepared in unexpected ways.  The same cannot be said for certain community and regional banks and BDCs, which might not have had the resources, scale or wherewithal to prepare.

Starting in 2018, the nation’s largest banks looked into the crystal ball and a couple things were apparent: 1. the economy was in extra innings and 2. the country was approaching an election cycle where anything could happen.  The strategy became clear:de-risk commercial loan portfolios before the banks were put in a 2008 situation by main street and sponsor-backed businesses rather than financial weapons of mass destructions i.e. CLOs/securitizations. To their credit, the banks came up with a strong and executable strategy: have the line managers exit marginal and cyclical credits quickly rather than have special assets work out credits.

Yes, businesses still went to workout, but much less than expected based on having line managers push out credits more quickly.  The economy was in overdrive, had hit peak employment and was clearly heading for a correction, yet banks reduced workout assets.  Sure, this was partial expense management to maximize profits, but this was not without thought and planning.  The major banks’ commercial lending divisions took preventive measures they felt would position them well for a downturn.  This entailed ceding riskier markets like leverage lending and allowing the competition to have their tougher credits or certain community-based real estate deals.

The banks, by and large, let BDCs, which are obviously hurting, take significant market share in the middle-market leverage lending space, which proved to be prescient.  The BDC market is going to experience significant losses given the industry’s leverage comfort is twice that of banks. The banks smartly generate profits as syndication agents rather than hold on-balance sheet.  The other key area banks avoided has been local real estate, which is and has been the stronghold of community banks.  This downturn is going to disproportionately affect community and regional banks with large real estate concentrations. So, by steering clear of both middle-market leverage lending and local real estate, the concentrations the banks have focused on, best-of-breed C&I clients in their respective markets.

There are always exceptions to the rule and regions do operate independently, but the proof so far is in the earnings announcements as loan loss provisions due to the consumer dwarfs commercial. Per the charts below from Marketwatch, the nation’s four largest banks recorded sizeable provisions for loan losses. However, it’s important to note that for all banks a disproportionate amount of loan losses were recorded for consumer lending activities.


The banks were certainly looking ahead while setting aside so much for loan loss reserves.  Commercial loans get categorized as non-accrual much faster than consumer,which typically will be carried in “performing,” but delinquent, categories of past due 30-89 days.  Consumer loans typically don’t get classified as non-accrual until past due 90.  To that end, there was only an uptick in nonaccruals, sequentially, which means non-accruals from consumer lending should start to show up in next quarter’s results.

TSLExpress_April29_Perer _nonaccural

We are still in early innings as it pertains to the fallout, but there is much to be gleaned from the information we have right now.  The above charts illustrate that the big banks expected the unexpected in regards to business lending, which is incredibly hard to do.  Banks have strong dominion over cash and collateral when it comes to business, but the opposite is true when it comes to the consumer.  The numbers don’t lie, and the banks are quite happy to let the airlines take center stage during this crisis.

No bank can ever truly plan for something like Covid-19, but they can plan ahead for a crisis in general, and they all remember two things vividly: 1. Public headlines and 2. The OCC.  Fear is a strong motivator and one can make an argument that the invisible hand of the government has put our nation’s banking system on a solid path with a few exceptions.  The banks knew something would eventually cause a crash and their timing was not without strong consideration. There was no upside in waiting until election day and history had certainly taught many lessons.

The OCC deserves meaningful credit. If you talk to executives at any big bank and you fill find out there has been active dialogue and involvement from the OCC, especially as it pertains to aggressive business lending. This is not as visible to banks with less than $50 billion of assets as they are deemed less risky to the financial system, but for the big banks the OCC is more than an invisible hand.  Case in point: When Covid hit, the banks were better capitalized than ever with very low leverage ratios and strong ability to weather a storm. Earnings are down, but dividends are still expected to be paid.

Like in recessions past, government might not be perfect, but it can be effective via the PPP. Rather than have banks become private equity firms, the PPP has in effect become free over-advance money to hundreds of thousands of businesses, which undoubtedly helped the banks reduce commercial loan loss provisions.  What is unknown at the time of writing this is the effect on the thousands of community and regional banks around the country that are less capitalized than the banks or took on greater risk as part of booking assets. These banks are largely out of the purview of the OCC, due to size, so the risk to communities is not yet known.

The aftermath is now upon us and will be dissected for years to come. Time will tell which banks are affected the most. The author would appreciate hearing from banks about how they prepared for an unexpected downturn.

Link to full article here.

Today’s environment has led to delayed M&A transactions, delayed capital raises, and limited access to bank / senior lender credit, which has created liquidity needs for many lower middle market businesses across the country. While these businesses scramble to gain access to liquidity via existing lenders and the SBA (and other federal, state, and local programs), the timing and amount of that capital available remains unclear.

While SG is certainly being cautious in this environment given the continued uncertainty around COVID-19’s impact, we are actively deploying capital for the following credit profiles:

High Net Worth Entrepreneur (“PFS Loan”)

  • Characteristics: Asset rich, liquidity constrained entrepreneurs in need of short-term cash infusion or bridge loan where speed and certainty to close are required. We enable entrepreneurs to leverage the equity in their personal assets that traditional lenders will not consider or cannot close fast enough (SG is able to close within 1 – 2 weeks).
  • Structure: Flexible security positions around financing situation, cash flow, and available collateral.
  • Recent Example: Real estate developer required capital to paydown a margin line and to fund operating expenses. SG proposed a $5MM loan secured by a 2nd lien on marketable secuirities (behind margin line) and a second deed of trust on a specific property.

Software/Recurring Revenue

  • Characteristics: Need to extend runway due to delayed M&A / capital raise activity or seeking non-dilutive growth capital. Typically too small for tech banks / venture debt funds and/or no big name VCs involved. $4MM or greater annual recurring revenue (ARR) and strong retention rates.
  • Structure: 1st Lien or 2nd Lien
  • Recent Example: $6MM ARR SaaS company’s planned Series B raise in the summer is going to be delayed due to the current environment. SG proposed a $2MM 1st lien facility to extend the Company’s runway 12+ months.

Senior Secured (Collateral Based and/or Cash Flow)

  • Characteristics: Company does not qualify for conventional financing or didn’t previously need outside financing. Traditional financing options (bank, ABL, factoring, cash flow / unitranche) not a viable option for the company due to insufficient availability from traditional collateral advance rates, nature of assets, billing cycle, and/or lack of speed & flexibility to close the transaction.
  • Structure: 1st Lien
  • Recent Example: Company with $6MM of TTM EBITDA and $3MM of accounts receivable needed $9MM to complete a shareholder buyout. SG proposed a $9MM 1st lien facility structured around accounts receivable and cash flow.

George Clooney starred in the financial crises era movie, “Up in the Air,” that we in the commercial finance industry are all about to live through with one big exception. The asset-based lending (ABL) industry was the sector of commercial lending that was supposed to be the “George Clooney” sent in to provide liquidity and a wake-up call, or at least preserve collateral positions during a crisis. However, it’s going to be up to the commercial banks to unexpectedly crash the party and save the day rather than the bank and non-bank ABLs. The recent events surrounding the outbreak of the COVID-19 virus have unfolded so suddenly that the banks have no choice but to do battlefield surgery. This is truly emergency surgery on the front lines of commercial finance with no backup coming for a while.

This was not how any of us envisioned this happening. The ABL industry, both bank and non-bank lenders, spent the past five years waiting for a downturn to happen to show the banks that ABL – with frequent borrowing bases, field audits and cash dominion – is King. What the industry never expected was the tsunami that caused this immediate crisis, rather than an expected downturn that would have enabled a mass transfer of loans to ABL from C&I lending groups. It simply was not supposed to happen this way. The ABL industry dreamed of a recession, but instead got an immediate shutdown and corresponding depression that no one could have foreseen, especially not on a national, let alone global scale.

This all happened invisibly and literally overnight via a pandemic virus, rather than over a period of time. As the author writes this, the ABL market is frozen – meaning it’s very difficult to establish clear and reliable liquid NOLVs for any assets, and the market won’t unfreeze until business resumes. How can it?  Over the past few years, the ABL industry feasted on tougher credits while the banks grew. The banks grew by focusing on asset/loan growth at the expense of creating special assets and ignoring rising expense ratios. So, when the music finally stopped, they were driving far from home without a spare tire.

The result is that the banks are going to have to learn to operate, or at least try to operate, like ABLs as they are going to be the proverbial policeman who delivers a baby on the way to the hospital. Right now, banks don’t have time for ABL monitoring or special assets transfers – but this is happening on their watch. It’s semantics at this point to say we are in a pandemic. What we are in is a three-dimensional tragedy. Every ABL expected this, but what no one expected was a complete economic shutdown that would simultaneously freeze the economy and capital markets. Special assets groups certainly expected something, and they have been dreading this day as they were going to be placed on the front lines with minimal resources. Commercial banks were expecting the benefit of time to transition staff to the workout areas of the bank, but that time never materialized.

So, where does this leave us all? In a terrible position. The banks are put in the worst possible position at the worst possible time. All ABLs are busy with frozen collateral and there are far fewer special asset professionals around to help. The banks, similar to ABLs, had a plan in place to transfer staff to special asset groups over a period of months, not days or weeks. The ABLs were meant to have a head start to staff up in order to transition assets as evidenced by many banks forming middle-market ABL groups with the intention of dedicating resources to focus on commercial bank transfers. Similar to hospitals, they were built for sick people rather than entire cities. You cannot transfer an entire a bank portfolio to a small group of workout professionals any more than a hospital can treat an entire city.

This means many ABLs are already in an over-advance position with the worst yet to come, and that is just the bank ABLs. Non-bank ABLs are typically leveraged 4x to start and now have illiquid portfolios. The ABL market is going to be stuck and at the mercy of the government, which will be the new primary source of repayment via SBA loans and Treasury-infused capital markets liquidity. In several instances, traditional collateral (AR & Inventory, etc.) is going to become the secondary source of repayment rather than primary, that is until the market unfreezes. Everyone’s collateral is frozen, literally. Companies are hoarding cash due to the virus and no one can access collateral. ABLs are going to need to fund payrolls and protective advances to get to the point where business can resume and collateral can de-frost, but at what cost?

The ABL industry is firmly on the defensive rather than the big offensive movement to transfer assets from banks that they expected. The ABL industry grew tremendously in a market boom and, like most industries, never considered the business case of a global shutdown and lockdown of certain U.S. cities — how could they? And this time, the banks and non-banks are not going to get bailed out as there is no incentive for banks to ask for a bailout – just look at the airline industry right now. So, it’s every lender for themselves. This is going to impact main street hard, so brace yourself. Most medium-size businesses turn to their bank in their time of need, which is usually situation-specific not a global catastrophe in nature. ABLs are simply not going to throw good money after bad that’s for sure, but they will be able to save some.

Movies are always better than reality, but this is the reality of our livelihoods and that of our clients. The author has no bold predictions at this point and hopes to make this the first of posts about his collective feedback gathered from professionals in the market. Real suffering is starting to take hold, so we can only hope that there will be some business success stories where lenders came together to save lives and jobs. If we can all just get back Up in the Air.

Link to article here.

The Company: Founder-owned commercial real estate software-as-a-service (“SaaS”) platform.

The Financing Situation: The Company’s legacy business has matured to a stable level with long-term contracted customers. Through a majority-owned subsidiary, the Company is developing a complementary SaaS platform. The new platform is still in its early stages of deployment and needed growth capital to fine-tune software development and expand marketing initiatives.

The Solution: Despite the current market conditions, SG was able to get comfortable with the contracted recurring revenue of the legacy business, its mission critical software, and the counter cyclicality of the platform. SG worked quickly to provide a senior secured $4.5MM growth capital loan facility within 10 days of receiving a signed term sheet.

The Company:  Founder-owned AI software subscription and services company providing a management platform for microservice-based enterprise applications.  Services Revenue: $10MM | SaaS Revenue: $3MM.

The Financing Situation:  The Company had successfully grown their annual recurring revenue (ARR) base from $2MM to $3MM over the course of 12 months with no outside investment. In order to raise an equity round at a high valuation, they knew they needed to drive ARR up to $5MM in 2020. This would require investment in software development and hiring additional sales personnel, but the Company was under a cash constraint due to the cyclical nature of their contracts. The majority of the Company’s contracts are tied to government agencies and therefore tied directly to the annual government budget and spending cycle. The Company needed near term liquidity to fund R&D and sales initiatives in order to achieve their revenue growth goals in 2020.

The Solution: SG was impressed with the Company’s software platform, organic growth, strong pipeline of contracted revenue, and ability to reach positive cash flow with no equity financing and minimal debt financing. SG provided a senior secured, $3MM growth capital loan structured around an ARR borrowing base and provided tailored amortization around the Company’s cyclical cash flow.

The Company: Founder-owned managed service provider offering leading SD-WAN and edge solutions to businesses around the world.

The Financing Situation: The Company demonstrated significant year-over-year growth and had recently signed several large, multi-year contracts with new customers. The Company needed upfront working capital to invest in additional people costs in order to effectively perform on upcoming contracts. Additionally, due to the timing of annual payments, monthly cashflow could be lumpy. The Company needed a flexible, quick-to-close solution and the owners preferred to finance the Company’s capital need with non-dilutive debt rather than equity.

The Solution: SG Credit was impressed with the Company’s large recurring revenue base, strong pipeline of signed contracts and substantial enterprise value. SG Credit provided a second lien $1.5MM loan behind the Company’s existing factoring relationship, which provided the Company with enough working capital to smooth out monthly cashflow and successfully perform on the recently signed contracts.

The Company: Enterprise SaaS platform that enables companies to prepare and oversee RFPs and other business responses with speed, accuracy, and compliance. Recurring Revenue: $4.5MM.

The Financing Situation: The private equity backed Company was emerging from an operational restructuring and planned to rebuild its tech platform to increase functionality, improve UX, and drive sales. The Company’s existing bank lender was not willing to finance these initiatives so SG Credit was approached to refinance the existing bank lender and provide additional liquidity so the Company could execute on its plan.

The Solution: SG Credit provided the Company with a bifurcated loan structure consisting of a $1MM interest-only loan to refinance the existing debt and a $1MM term loan to finance the Company’s growth initiatives.  This structure provided the Company with 12+ months of runway and allowed the Company’s existing bank lender to exit the credit as desired.  SG Credit was able to close the deal within 3 weeks after quickly getting comfortable with the Company’s recurring revenue, client base quality, low churn, strength of the new management team, and continued shareholder support.

Sales Managers in asset-based lending (ABL) have the most thankless job – part sales, part psychology, heavy administration, always on the go covering markets and trying to meet ever-increasing quotas. Talk to any National or Regional Sales Manager and they will tell you what it’s like trying to a hire a team – let alone an all-star team – train them, achieve quotas, deal with human resource issues and battle credit. All the while, you rarely set foot on the actual proverbial baseball field. You typically don’t get to the level of sales manager without knowing how to compete and that adrenaline never goes away. However, it’s an entirely different game when you become manager of the baseball team rather than a player on the field.

Similar to the manager position in the game of baseball, the business of ABL seems to see a lot of change at the sales manager level, especially on the bank-ABL side, but it is pervasive on both bank and non-bank. This is evidenced by an epidemic as of late of NSMs either leaving to go the non-bank route or going back in the field. The off-the-record sentiment among current and former NSMs is that it can be very frustrating to intimately know each region and staff it, but have limited ability to control anything. Also, of note, many times NSMs inherit underperforming BDOs from prior managers that create a difficult dynamic between feeding them leads or letting them fail. It is almost impossible to build and keep a cohesive team from coast-to-coast, especially in bank ABL when regulations and bureaucracy make it harder to compete.

Bank ABL quotas seem to go up regardless of where we are in the cycle, yet at the same time bank C&I portfolios are generally clean. This is pushing bank ABLs to try to poach from other banks who also probably have somewhat clean portfolios. It’s a vicious cycle with banks having clean portfolios yet still expect growth from their ABL groups. The quotas typically do not get reduced, even if people leave, meaning fewer people are forced to do more. This topic is a very fun debate amongst sales managers around the country as they get penalized for not being able to hold onto talent based on a compensation program they did not design or credit process they do not control.

Managing BDOs deserves an entire article by itself. Rainmaker BDOs are almost impossible to find and in general BDOs can range from just getting started, inherited, experienced and nearing retirement – it’s a wide range. Some just get tough markets to cover like when another bank has a controlling market share. Alternatively, some just aren’t great fits. Managing and working with people in an intense deal- and time-driven product like ABL takes its toll as, unlike traditional C&I lending, ABL can be a sprint to the finish line business. Now multiply this across all markets all the time. National sales managers need to get team feedback, paint the best picture in front of credit committees, and, of course, know when to buttonhole credit. It’s playoff time all the time when leading the sales function in the banking world.

The analogies to being a baseball manager are there – team sport with individual metrics in different parts of the field. Now replace the field with the entire country and the manager needs to know each region. The travel is non-stop and the markets can vary greatly as too much focus on national economic data does not tell the story region by region. The sales manager has no choice but to learn each market as it is only inevitable that at some point, they will be player-coach in a market given the performance demands instituted by banks and non-banks.

Underwriting and credit play real roles as these functions are typically centralized whereas the sales team and deal flow are typically national with varying industries and situations. Port cities might be logistics heavy whereas the Midwest is industrial heavy – asset light versus asset rich. Different city, different credit fosters different strategy that might vary depending on a bank’s credit culture. It would not be uncommon for a sales manager to get in between an experienced and, of course, credit-trained BDO and an underwriter who has limited experience. In fact, this would be common place. This is the intersection where the critical role of sales managers becomes apparent. It is a real skill to deftly act as a liaison between credit and the BDO as well as assist in managing the BDO’s expectations.

The competitive nature of each market will vary wildly such as whether the NSM’s bank has a local retail presence or certain other banks choose to undercut on pricing. In other words, it’s a multi-dimensional game with different talent, competitors, tactics, industries and strategies in each market across the country. Also to note, many markets might not have any affiliation, so you are really going in with no backup. Banks in general swing the pendulum on risk in the ABL market as most banks typically have a bank culture that values low leverage and cash flow versus financing off of the balance sheet.

This leads into the complex dynamic at a bank between bank-ABL and bank-C&I executives. A good bank-ABL BDO provides strong coverage to his/her commercial banking group as it should be a great source of referrals. These same groups can be competition and ABL can’t compete with C&I if C&I really wants a deal. The bank C&I groups can always win on pricing and avoid all the bells and whistles that come with ABL. It’s an easy win despite many clients being better fits in an ABL structure to protect the bank. Not all, but many bank RMs are loathe to transfer clients whether it be loss of income or fear of straining an important relationship. This obviously varies bank by bank and even by market.

Again, similar to baseball, the NSM has to see the entire playing field. The travel, the recruiting, managing people, managing deals, the actual deal shepherding up-and-down the chain plays out like a continuous news cycle. Whatever an NSM traded in pay to get the title and role, they lose in stress and travel trying to make sense of each market and make sure their team is focused. Should one ever get discouraged they just need to remind themselves they can easily go back to being a BDO and potentially make more money working less. If you thought managing a baseball team was hard, good luck managing an ABL team in this market. Good managers are hard to come by in sports and in business.

Link to article here.