October 9, 2020 • 24 mins
Josh Burleson of Affiliated Bank joins Dr. Verret to discuss all of the terms and processes associated with commercial banking.
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Announcer (00:00):
Ask Me MD, medical school for the real world with
(00:03):
the MD Dr. D.J. Verret.
D.J. Verret, MD, FAC (00:06):
Greetings, and welcome to another episode
of Ask Me MD, medical school forthe real world. I'm Dr. DJ
Verret, and today we're talkingcommercial banking with Josh
Burleson of Affiliated Bank.
We'll talk to Josh, right afterthis.
Commercial (00:23):
Commerical insterted here
D.J. Verret, MD, FACS (00:36):
Welcome back to Ask Me MD, medical
school for the real world. I'mDr. D.J. Verret. And today we
have the pleasure of talkingwith Josh Burleson of Affiliated
Bank about commercial banking.
Josh, thanks for joining us.
Josh Burleson (00:49):
Thank you. Thank you. I appreciate you having me
on. And I'm look forward tosharing more about commercial
banking affiliated bank andmyself.
D.J. Verret, MD, FACS (00:57):
Well, and I had you I invited you on you
guys have been real helpful forme personally. And I know what
I've been doing commercialbanking for the last 12 years.
But when I got started, and evenalong the way, I learned some
things that are that are fairlydifferent from personal banking
that I think would be importantfor some of our physicians to
(01:19):
learn. So to start with, though,can you give us a little bit of
tell us a little bit aboutyourself and your background?
Josh Burleson (01:26):
Certainly. Yeah, my name is Josh Burleson, and
I'm the director of commercialbanking for affiliated bank.
I've been in banking for alittle over 15 years, and been
with affiliated bank for aboutthree years. share a little bit
about affiliated bank, we're acommunity bank based in
Arlington, we have locations inFort Worth garlin Round Rock,
(01:47):
Bedford. And really one of thekey things that makes us
different and unique compared tosay, a chase or bank of america
is we're a community bank, inthat we're about 1.1 billion of
assets. But we're a communityfocused bank. You know, we have
about 200 employees, and reallywhere our niche and where we do
(02:08):
the best job at serving clientsis commercial clients. Our
decision making is local. And wealso have a mortgage group and
kind of the consumer financeside.
D.J. Verret, MD, FACS (02:21):
So just to give people an idea, you say
1.1 billion, that sounds like areally big operation. But in
banking, that puts you on thesmaller side, correct,
Josh Burleson (02:30):
that 1.1 billion that that puts us really kind of
a smaller, smaller, smallersize, especially compared to you
know, the chase B of A WellsFargo Wells Fargo's share of
national platforms, even thelarge regional banks are
typically 25 billion to 50billion. As far as community
(02:50):
banks, it probably puts us rightin the middle, we're not a small
bank, and you know, 250 millionof assets, but 1 billion of
assets, that's a really goodniche size Community Bank, it
gives us the capacity to doloans up to 10 to 15 million,
but really, our fairway loansize is really loans and that,
you know, 500,000 to $5 millionrange is our our typical type
(03:14):
loan, which really covers about95% of the market. As far as
small businesses and physiciansthat we focus on.
D.J. Verret, MD, FACS (03:23):
You mentioned that your decision
making process is local, in andcan you kind of take us through
what you mean by that in theloan approval process and kind
of how that works.
Josh Burleson (03:35):
Absolutely. So our loan approval process
comparative to, you know, alarge national bank that they
have very set parametersprocesses, to do it, which we
have the same processes. We havea lot of delegated authority out
to the lineage officers,including myself that I can
approve loans up to a milliondollars just just by myself, and
(03:58):
then really to do, you know,loans up to 8 million, it only
takes two additional signatures.
And it's the same individualsmaking the decision every time
it's not that we have aseparate, you know, credit
approval process and a differentstate. It's all local here in
Arlington, Fort Worth andDallas. So it gives us a lot of
flexibility. We know ourcustomers very well.
D.J. Verret, MD, FACS (04:23):
So in terms of commercial education,
commercial banking education,I'm going to throw out a few
terms for you. And if you couldhelp us understand what they
mean, I think it'll kind ofprovide a basis for some of the
other discussion. And in thefirst one I would throw out
there is fight go score and howthat affects commercial banking.
Josh Burleson (04:45):
Certainly, so Phyto score is your personal
credit score. There's there'sthree major credit bureaus that
give your personal credit score,and so on commercial loans,
comparative to say mortgages werely on The personal credit
score, but it's not an ultimatedecision makers, we use it as
one of the many criterias whenmaking a loan decision. But
(05:08):
typically on the commercial sideloans were not strictly based on
that comparative to say amortgage mortgages are highly
driven by that personal creditscore. So we use as one of the
factors based on a decidingfactor.
D.J. Verret, MD, FACS (05:24):
Now, I know a lot of people know about
he locks or home equity line ofcredit, is there an analogous
lending program for commercialbusinesses as well?
Josh Burleson (05:38):
Certainly. So he walked home equity line of
credit, that's a consumerproduct, the individuals get
just have line of credit againsttheir house, on the business
side, kind of our comparativeproduct and offering is we
provide business lines ofcredit, business lines of credit
anywhere the size of 50,000, toreally about 5 million or
(06:00):
larger, I always recommend forbusinesses to have a line of
credit, just because you neverknow when you may need it. And
when you do need it, it'susually easier to get a line of
credit when you don't need it,versus when you actually do need
it, I just always think it'sgood to have a line of credit in
place that says backup liquidityfacility. You know, especially
if you look back over thepandemic, over the last six
(06:23):
months, if, if you had a lot ofcredit setup prior to it, maybe
you could use it to help you getthrough the pandemic. So it's
really a safety net and kind ofan insurance little bit of an
insurance policy to have inplace.
D.J. Verret, MD, FACS (06:36):
How exactly do lines of credit work?
I mean, is it you'd let you signup for a line of credit and you
get a lump sum amount of money?
Or is it you get approved for aloan, and then you simply take
out money when you need it? Howdo they actually work?
Josh Burleson (06:52):
A line of credit, how it works, we you know, we
determine the line of creditamount, you know, visiting with
with the customer. And so we'llset up a line of credit, say,
for example, $500,000, we closethe line of credit, it's like
you're closing any other loan,but you do not you have it
available, but you do not payany interest on it unless you
(07:13):
use it. So if you never use it,there's not any interest. And so
when you do need it, you callthe bank and we advance the line
of credit and put it in youraccount. And we can do it same
day.
D.J. Verret, MD, FACS (07:25):
So that the next thing that often comes
up in commercial lending arepersonal guarantees Can Can you
talk a little bit about what apersonal guarantee is and what
role it plays in commerciallending.
Josh Burleson (07:37):
Certainly, typically, when we do a line of
credit or equipment, or buildingloan will make that loan to
business entity LLC, aprofessional liability
corporation, Inc, whatever thatmay be. So the actual company is
the borrower. And so what wealso rely on our underwriting
and what we typically ask for,as a personal guarantee from the
(08:00):
owners of that company. And whatthat personal guarantee does, it
really does kind of two primaryfunctions. One, it helps provide
financial support. So ifsomething happens with the
business, we know the owners ofthe business will stand behind
the loan.
D.J. Verret, MD, FACS (08:14):
And to, you know, kind of helps it
again, if something goes doesnot go as planned owners do not
just walk away, that they help,you know, help us work through
whatever that situation may be.
So personal guarantees areimportant to us and all banks,
just because we want ourinterest aligned with the
companies and the owners of thebusiness. And usually we're
talking about with personalguarantees. We're talking about
(08:35):
smaller companies where theremay be a small physician
practice where there are two orthree physicians or a small LLC
may be owned by one person, nota company that would be fully
autonomous on its own andoperating without kind of a key
man. Correct?
Josh Burleson (08:55):
Certainly, certainly. So typically in the
small and smaller businessloans. There are personal
guarantees once you get up intolarger commercial loans,
corporate loans. A lot of thoseloans are not personally
guaranteed. But there's a largeenterprise that stands behind it
that if you know one individualor two individuals was no longer
part of the organization, theorganization could could
(09:16):
continue on its own.
D.J. Verret, MD, FACS (09:18):
Another term I see quite often,
especially when when talkingabout interest rates on loans is
a lie bore. Can you tell us whatthat is and how that affects
more business loans than thensay residential loans.
Josh Burleson (09:34):
Certainly live war is the London enter winter
London interbank overnight rate.
And so that is just one of theindexes that banks use to price
loans. So for example, live wordtoday is about 5015 basis
points. So typically, a bankwill say live warpless 3%. And
so that may be a rate of 315.
(09:55):
It's just one of the indexesthat banks use. You know, one
thing to note Live war is goingaway in the next couple of
couple of years. It's beingslowly faded out over the next
two years, and there's going tobe some other indexes banks, you
will use to price loans. One ofthe other most common indexes,
(10:15):
banks use, and we primarily usethis wall street journal prime,
which is just a rate that'spublished, published by the
banks and the Wall StreetJournal journal.
D.J. Verret, MD, FACS (10:26):
When when I work with commercial banks,
they also have treasurymanagement departments. And that
was kind of an interestingconcept to me. Can you can you
explain what treasury managementis from a banking perspective?
Josh Burleson (10:41):
Certainly. So we have the standard deposit
products, you know, standardchecking accounts, online
banking, but many of ourcompanies, especially
physicians, and largercompanies, they have unique and
special needs on the depositside, for example, a CH for
physicians in particularmajority of their payments come
(11:01):
in a CH, from the insuranceproviders. So the Treasury,
treasury management is has ahard sophistication, more in
depth online banking platformthat really helps companies and
physician physicians managetheir deposits. You know,
another example is remotedeposit, you know, branches or
(11:23):
branches are going slowly goingaway. And so we have the ability
to put a machine in the officeof a business and they can
deposit checks remotely fromfrom their office. Also, in
Treasury online, it providesmore in depth reports and
reporting, versus just thestandard online banking.
D.J. Verret, MD, FACS (11:45):
Can we talk a little bit? You know, I
think a lot of people arefamiliar with home mortgages,
they probably have had a homemortgage at some point or gone
through the process. Butcommercial lending is, is quite
different than home mortgages.
Can we talk a little bit aboutthe process of commercial
lending and how it differs than,than home mortgages, and I'm
sorry, by commercial lending, Imean, for real property, as
(12:06):
compared to a home mortgage.
Josh Burleson (12:12):
Certainly, certainly, a home mortgage, you
know, probably the most uniquething about a home mortgage,
what makes it different fromcommercial lending, is it's a
consumer loan that is highlyregulated, and what what the
regulator's have done if theyreally try to work and make that
a uniform process throughout allbanks. So whatever bank you're
(12:33):
applying for the underwritingstandards, the criteria, it's a
very uniform approach betweenall banks, whereas on commercial
lending, each bank really hasmore, a lot more flexibility and
the ability to set their ownstandards on criteria for what
type of commercial loan, youknow, rule sets real estate loan
(12:54):
they'd like to make. It doesn't,you know, a mortgage, they want
a mortgage to fit perfectly intoa box. Whereas commercial
lending, we just have a lot moreflexibility on real estate
loans.
D.J. Verret, MD, FACS (13:06):
And part of that comes from the sale in
secondary markets, correct?
Josh Burleson (13:11):
Absolutely. And then on mortgages, there's
really kind of two primary typesof mortgages. And we do both of
them. It's the mortgages thatget sold on the secondary market
to investors. So the investorswhen they buy mortgages, they
like everything to be standard,standardized, everything fit in
a box. And those are themortgage that investors buy. And
(13:32):
those have the best rates, whichmortgage rates today are below
3%, which is kind of why thatwhy that mortgage product has to
be standardized. One thing we doas a community bank that's kind
of unique, we do those secondarysecondary mortgages on the
market, but we also do portfoliomortgages. And the primary
(13:52):
difference between a secondarymortgage in a portfolio
mortgage, we have moreflexibility to underwrite
mortgages that we hold on ourown balance sheet, and that we
can set more of the criteria andhave more flexibility. So kind
of, for example, a lot of ourportfolio loans are business
owners, that maybe their incomechanges year to year, for
whatever reason, maybe capitalgains, were they can't perfectly
(14:16):
fit in that box on the secondarymarket, but it's still a very
good mortgage, will originatethe mortgage, and we'll hold it
on our own balance sheet.
D.J. Verret, MD, FACS (14:25):
And that's what you mean by
portfolio mortgage is thatinstead of reselling the loan,
the bank actually keeps it andservices that that loan until
it's fulfilled, correct?
Josh Burleson (14:35):
Correct. Correct.
We keep the loan re service it.
We do not sell it on thesecondary secondary market. We
talked a
D.J. Verret, MD, FACS (14:43):
little bit about commercial lines of
credit and real estate loans.
Are there other VA loan typevehicles that banks that banks
such as yourself would work withcommercial commercial entities
on And we hear a lot aboutphysician loans where they're
Lower, lower down payments onthe loans. Talk to us a little
(15:06):
bit about some of the variety ofloans that you can put together.
Josh Burleson (15:13):
Certainly, we have the standard commercial
real estate loan, whichtypically physicians we can be
more aggressive as far as downpayments, for example, because
typically physicians have veryhigh recurring income in
salaries. And so it helps usmaybe have less of a down
payment, and a lot more just onyou know, that the income, we
(15:34):
have lines of credit equipmentfinancing, we also provide SBA
financing. So SBA is a uniqueand a good tool for especially
positions that may be startingout or want to make a real
estate purchase. SBA provides,you know, some flexible terms,
there's really two products, SBAseven A, which, you know, for
(15:54):
example, on a building loan,that's typically 90% loan to
value on the costs on a 25 yearamortization. And then we also
offer a loan called SBA 504loan, which allows long term
financing on real estate. Andwhat makes that product really
unique and special. You know,the fixed rate those rates today
(16:16):
on the SBA 504 loan is aboutthree and a half percent to 4%
for 10 years. So the rates onthat product are just really at
all time lows at this point. Sowe offer SBA loans, commercial
real estate loans, we also havea private bank, which kind of
the private bank is reallyfocuses on more than
individuals. It's not theconsumer side, but it's really
(16:40):
just the private bank provideslots of different services,
especially for decisions or alot of our customers in that
group.
D.J. Verret, MD, FACS (16:47):
And when we're talking about those kinds
of loans, they can be secured orunsecured correct and kind of
explain what that means, if youwould,
Josh Burleson (16:55):
certainly. So, a secured loan, it's secured by
the real estate equipment,accounts receivable. But quite
often, we'll do an unsecuredline of credit, and just an
unsecured line of credit.
There's no collateral behind it.
It's purely based on the companyand or the guarantor.
D.J. Verret, MD, FACS (17:16):
You mentioned, a 25 year
amortization. Most people are indealing with personal loans more
or home mortgages, theamortization and the repayment
period end up being the same.
But that's not always the casewith commercial loans. Can you
explain the difference betweenrepayment period and
amortization and how that kindof works?
Josh Burleson (17:39):
Certainly, between the repayment typically
banks will do a maturity of fiveto 10 years on the loan, that
the amortization may last belonger. So for example, if it's
a commercial real estate, thebank may do an amortization of
five to 10 years, say a 10 yearmaturity, and a 25 year
(18:00):
amortization. And what thatmeans is the end of year 10, for
example, the company has to, youknow, refinance it, or the bank
has to renew that loan for alonger maturity, whereas a
mortgage, it's a 30 year, youknow, 30 year term 30 year
amortization, there's there's nomaturity.
D.J. Verret, MD, FACS (18:18):
And when you say amortization, can you
can you go a little bit more indepth about the calculation
involved there? You know,because when when you look at
the, since the amortization andthe repayment are the same, and
in mortgages and home mortgagesthat people will be familiar
with, that that's not quite thesame process, even though the
(18:40):
payments may look like it's a 30year loan. That's not how it
works all the time andcommercial lending, correct?
Josh Burleson (18:48):
Correct, correct, that payments may be made, you
know, the payments are based onit, say 25 year amortization.
But the note at the end of forexample, five years or 10 years,
it matures and it has to be 100%of that note balance has to be
paid off. And so what typicallyhappens in those cases is either
(19:08):
a the bank you know refinancesrenews it for another five to 10
years, or the borrower has topay that loan off through
refinancing it with another bankor through personal means.
D.J. Verret, MD, FACS (19:21):
When when you're looking at commercial
lending, you know, the, againmost people I think are familiar
with the mortgage process andwhat documentation is needed. In
commercial lending, though itcan be a little bit different.
Walk us through kind of theinitial application process and
what that looks like forcommercial lending. Certainly.
Josh Burleson (19:44):
So together initial processes are typical
process it as we you know, willmeet with the customer, learn
about the business learn aboutwhat they're looking for. And
they'll provide us with a with aloan application and all the
financial And we'll go throughthe financials with the company,
determine what they need, whatthey're trying to look for what
(20:06):
we're trying to help them with.
And then we'll issue a termsheet, which outlines all the
terms. You know, interest rate,amortization, personal
guarantees, will issue them aterm sheet of what we're
proposing how to finance,finance, the building, or the
equipment or the line of credit.
And then once they're, you know,kind of approved the term sheet
(20:27):
for us to move forward, youknow, we'll go into full
underwriting and approvalprocess, you know, typically
timeline, typically, it's abouta 30 day process for us to
completely underwriting andapprove alone.
D.J. Verret, MD, FACS (20:40):
And when you talk about financials,
you're in the smaller practicesin particular, you're talking
about both the personal financesof all of the owners as well as
the business finances, correct?
Josh Burleson (20:53):
Correct. Correct.
Well ask for all the financialson the business. And then we'll
ask for personal financialstatement, and personal tax
returns.
D.J. Verret, MD, FACS (21:02):
In my experience in dealing with
community banks, which has beengreat is oftentimes for
additional loans, the processends up getting a lot easier and
quicker, because therelationships been built. And
those financial statements arefairly current and updated every
year, correct?
Josh Burleson (21:22):
Correct. Correct.
You know, we can move once wehave a relationship, and we have
all the information and filesand file if there's a follow on
request, you know, maybe anincrease in the line of credit,
or a new equipment loan, or anew building loan, we already
have that relationship. And knowthat person, and we have all the
financials and we have all thebusiness entity documents, we
can move much quicker once wealready have an existing
(21:45):
relationship.
D.J. Verret, MD, FACS (21:48):
Josh, is there anything else that we
missed in our discussion thatyou think our physicians would
be interested in?
Josh Burleson (21:56):
I would say just just because this is so
important, right now, I've beena hot topic for the last six
months, it'd be PPP payrollprotection program. We
affiliated bank, we really wenton the offense with it. And we
are very successful in theprogram. We did over 1600 loans,
for about over $200 million ofPPP loans. That forgiveness
(22:19):
process is now coming up. Sojust be aware of that being
contact with your bank about thePPP forgiveness. And more
importantly, and something thatwe're really following very
closely, is there's been severalpieces of legislation proposed
and both both the House and theSenate, for there be another
round of PPP funds. I think it'svery likely that there's going
(22:40):
to be another round of PPPfunds. And what that looks like
it's most likely is where seemslike it's going is, you know,
there's gonna be another roundof PPP, you know, be available
to those businesses that werehighly impacted by COVID. One of
the tests that has been proposedis that revenue is down between
25 and 50%. You can qualify foranother PPP loan. I think it's
(23:05):
very likely to get passed, it'sjust taking much longer than,
than what we like, just withwith the election coming up and
politics, everything's takingmuch longer, but I do think
there's gonna be another roundof PPP later this year. You
know, for example, physiciansand physician practices, who
they were shut down for 90 days,I would think it's very likely
(23:25):
they qualify for another PPPlow.
D.J. Verret, MD, FACS (23:29):
Josh, thanks for joining us a lot of
useful information.
Josh Burleson (23:33):
Yeah, absolutely.
Thank you.
D.J. Verret, MD, FACS (23:35):
We've been talking with Josh Burleson,
of Affiliated Bank aboutcommercial banking. You're
listening to Ask Me MD, medicaschool for the real world. I'
Dr. D.J. Verret. Until next tme, make it an awesome w
Announcer (23:47):
Thank you for joining us for another episode of Ask Me
MD, medical school for the reaworld with Dr. D.J. Verret. If
you have a question or an idea fr a show, send us an emai
at questions at Ask MeD podcast.co
Ask Me MD, medical school for the real world with
(00:03):
the MD Dr. D.J. Verret.
D.J. Verret, MD, FAC (00:06):
Greetings, and welcome to another episode
of Ask Me MD, medical school forthe real world. I'm Dr. DJ
Verret, and today we're talkingcommercial banking with Josh
Burleson of Affiliated Bank.
We'll talk to Josh, right afterthis.
Commercial (00:23):
Commerical insterted here
D.J. Verret, MD, FACS (00:36):
Welcome back to Ask Me MD, medical
school for the real world. I'mDr. D.J. Verret. And today we
have the pleasure of talkingwith Josh Burleson of Affiliated
Bank about commercial banking.
Josh, thanks for joining us.
Josh Burleson (00:49):
Thank you. Thank you. I appreciate you having me
on. And I'm look forward tosharing more about commercial
banking affiliated bank andmyself.
D.J. Verret, MD, FACS (00:57):
Well, and I had you I invited you on you
guys have been real helpful forme personally. And I know what
I've been doing commercialbanking for the last 12 years.
But when I got started, and evenalong the way, I learned some
things that are that are fairlydifferent from personal banking
that I think would be importantfor some of our physicians to
(01:19):
learn. So to start with, though,can you give us a little bit of
tell us a little bit aboutyourself and your background?
Josh Burleson (01:26):
Certainly. Yeah, my name is Josh Burleson, and
I'm the director of commercialbanking for affiliated bank.
I've been in banking for alittle over 15 years, and been
with affiliated bank for aboutthree years. share a little bit
about affiliated bank, we're acommunity bank based in
Arlington, we have locations inFort Worth garlin Round Rock,
(01:47):
Bedford. And really one of thekey things that makes us
different and unique compared tosay, a chase or bank of america
is we're a community bank, inthat we're about 1.1 billion of
assets. But we're a communityfocused bank. You know, we have
about 200 employees, and reallywhere our niche and where we do
(02:08):
the best job at serving clientsis commercial clients. Our
decision making is local. And wealso have a mortgage group and
kind of the consumer financeside.
D.J. Verret, MD, FACS (02:21):
So just to give people an idea, you say
1.1 billion, that sounds like areally big operation. But in
banking, that puts you on thesmaller side, correct,
Josh Burleson (02:30):
that 1.1 billion that that puts us really kind of
a smaller, smaller, smallersize, especially compared to you
know, the chase B of A WellsFargo Wells Fargo's share of
national platforms, even thelarge regional banks are
typically 25 billion to 50billion. As far as community
(02:50):
banks, it probably puts us rightin the middle, we're not a small
bank, and you know, 250 millionof assets, but 1 billion of
assets, that's a really goodniche size Community Bank, it
gives us the capacity to doloans up to 10 to 15 million,
but really, our fairway loansize is really loans and that,
you know, 500,000 to $5 millionrange is our our typical type
(03:14):
loan, which really covers about95% of the market. As far as
small businesses and physiciansthat we focus on.
D.J. Verret, MD, FACS (03:23):
You mentioned that your decision
making process is local, in andcan you kind of take us through
what you mean by that in theloan approval process and kind
of how that works.
Josh Burleson (03:35):
Absolutely. So our loan approval process
comparative to, you know, alarge national bank that they
have very set parametersprocesses, to do it, which we
have the same processes. We havea lot of delegated authority out
to the lineage officers,including myself that I can
approve loans up to a milliondollars just just by myself, and
(03:58):
then really to do, you know,loans up to 8 million, it only
takes two additional signatures.
And it's the same individualsmaking the decision every time
it's not that we have aseparate, you know, credit
approval process and a differentstate. It's all local here in
Arlington, Fort Worth andDallas. So it gives us a lot of
flexibility. We know ourcustomers very well.
D.J. Verret, MD, FACS (04:23):
So in terms of commercial education,
commercial banking education,I'm going to throw out a few
terms for you. And if you couldhelp us understand what they
mean, I think it'll kind ofprovide a basis for some of the
other discussion. And in thefirst one I would throw out
there is fight go score and howthat affects commercial banking.
Josh Burleson (04:45):
Certainly, so Phyto score is your personal
credit score. There's there'sthree major credit bureaus that
give your personal credit score,and so on commercial loans,
comparative to say mortgages werely on The personal credit
score, but it's not an ultimatedecision makers, we use it as
one of the many criterias whenmaking a loan decision. But
(05:08):
typically on the commercial sideloans were not strictly based on
that comparative to say amortgage mortgages are highly
driven by that personal creditscore. So we use as one of the
factors based on a decidingfactor.
D.J. Verret, MD, FACS (05:24):
Now, I know a lot of people know about
he locks or home equity line ofcredit, is there an analogous
lending program for commercialbusinesses as well?
Josh Burleson (05:38):
Certainly. So he walked home equity line of
credit, that's a consumerproduct, the individuals get
just have line of credit againsttheir house, on the business
side, kind of our comparativeproduct and offering is we
provide business lines ofcredit, business lines of credit
anywhere the size of 50,000, toreally about 5 million or
(06:00):
larger, I always recommend forbusinesses to have a line of
credit, just because you neverknow when you may need it. And
when you do need it, it'susually easier to get a line of
credit when you don't need it,versus when you actually do need
it, I just always think it'sgood to have a line of credit in
place that says backup liquidityfacility. You know, especially
if you look back over thepandemic, over the last six
(06:23):
months, if, if you had a lot ofcredit setup prior to it, maybe
you could use it to help you getthrough the pandemic. So it's
really a safety net and kind ofan insurance little bit of an
insurance policy to have inplace.
D.J. Verret, MD, FACS (06:36):
How exactly do lines of credit work?
I mean, is it you'd let you signup for a line of credit and you
get a lump sum amount of money?
Or is it you get approved for aloan, and then you simply take
out money when you need it? Howdo they actually work?
Josh Burleson (06:52):
A line of credit, how it works, we you know, we
determine the line of creditamount, you know, visiting with
with the customer. And so we'llset up a line of credit, say,
for example, $500,000, we closethe line of credit, it's like
you're closing any other loan,but you do not you have it
available, but you do not payany interest on it unless you
(07:13):
use it. So if you never use it,there's not any interest. And so
when you do need it, you callthe bank and we advance the line
of credit and put it in youraccount. And we can do it same
day.
D.J. Verret, MD, FACS (07:25):
So that the next thing that often comes
up in commercial lending arepersonal guarantees Can Can you
talk a little bit about what apersonal guarantee is and what
role it plays in commerciallending.
Josh Burleson (07:37):
Certainly, typically, when we do a line of
credit or equipment, or buildingloan will make that loan to
business entity LLC, aprofessional liability
corporation, Inc, whatever thatmay be. So the actual company is
the borrower. And so what wealso rely on our underwriting
and what we typically ask for,as a personal guarantee from the
(08:00):
owners of that company. And whatthat personal guarantee does, it
really does kind of two primaryfunctions. One, it helps provide
financial support. So ifsomething happens with the
business, we know the owners ofthe business will stand behind
the loan.
D.J. Verret, MD, FACS (08:14):
And to, you know, kind of helps it
again, if something goes doesnot go as planned owners do not
just walk away, that they help,you know, help us work through
whatever that situation may be.
So personal guarantees areimportant to us and all banks,
just because we want ourinterest aligned with the
companies and the owners of thebusiness. And usually we're
talking about with personalguarantees. We're talking about
(08:35):
smaller companies where theremay be a small physician
practice where there are two orthree physicians or a small LLC
may be owned by one person, nota company that would be fully
autonomous on its own andoperating without kind of a key
man. Correct?
Josh Burleson (08:55):
Certainly, certainly. So typically in the
small and smaller businessloans. There are personal
guarantees once you get up intolarger commercial loans,
corporate loans. A lot of thoseloans are not personally
guaranteed. But there's a largeenterprise that stands behind it
that if you know one individualor two individuals was no longer
part of the organization, theorganization could could
(09:16):
continue on its own.
D.J. Verret, MD, FACS (09:18):
Another term I see quite often,
especially when when talkingabout interest rates on loans is
a lie bore. Can you tell us whatthat is and how that affects
more business loans than thensay residential loans.
Josh Burleson (09:34):
Certainly live war is the London enter winter
London interbank overnight rate.
And so that is just one of theindexes that banks use to price
loans. So for example, live wordtoday is about 5015 basis
points. So typically, a bankwill say live warpless 3%. And
so that may be a rate of 315.
(09:55):
It's just one of the indexesthat banks use. You know, one
thing to note Live war is goingaway in the next couple of
couple of years. It's beingslowly faded out over the next
two years, and there's going tobe some other indexes banks, you
will use to price loans. One ofthe other most common indexes,
(10:15):
banks use, and we primarily usethis wall street journal prime,
which is just a rate that'spublished, published by the
banks and the Wall StreetJournal journal.
D.J. Verret, MD, FACS (10:26):
When when I work with commercial banks,
they also have treasurymanagement departments. And that
was kind of an interestingconcept to me. Can you can you
explain what treasury managementis from a banking perspective?
Josh Burleson (10:41):
Certainly. So we have the standard deposit
products, you know, standardchecking accounts, online
banking, but many of ourcompanies, especially
physicians, and largercompanies, they have unique and
special needs on the depositside, for example, a CH for
physicians in particularmajority of their payments come
(11:01):
in a CH, from the insuranceproviders. So the Treasury,
treasury management is has ahard sophistication, more in
depth online banking platformthat really helps companies and
physician physicians managetheir deposits. You know,
another example is remotedeposit, you know, branches or
(11:23):
branches are going slowly goingaway. And so we have the ability
to put a machine in the officeof a business and they can
deposit checks remotely fromfrom their office. Also, in
Treasury online, it providesmore in depth reports and
reporting, versus just thestandard online banking.
D.J. Verret, MD, FACS (11:45):
Can we talk a little bit? You know, I
think a lot of people arefamiliar with home mortgages,
they probably have had a homemortgage at some point or gone
through the process. Butcommercial lending is, is quite
different than home mortgages.
Can we talk a little bit aboutthe process of commercial
lending and how it differs than,than home mortgages, and I'm
sorry, by commercial lending, Imean, for real property, as
(12:06):
compared to a home mortgage.
Josh Burleson (12:12):
Certainly, certainly, a home mortgage, you
know, probably the most uniquething about a home mortgage,
what makes it different fromcommercial lending, is it's a
consumer loan that is highlyregulated, and what what the
regulator's have done if theyreally try to work and make that
a uniform process throughout allbanks. So whatever bank you're
(12:33):
applying for the underwritingstandards, the criteria, it's a
very uniform approach betweenall banks, whereas on commercial
lending, each bank really hasmore, a lot more flexibility and
the ability to set their ownstandards on criteria for what
type of commercial loan, youknow, rule sets real estate loan
(12:54):
they'd like to make. It doesn't,you know, a mortgage, they want
a mortgage to fit perfectly intoa box. Whereas commercial
lending, we just have a lot moreflexibility on real estate
loans.
D.J. Verret, MD, FACS (13:06):
And part of that comes from the sale in
secondary markets, correct?
Josh Burleson (13:11):
Absolutely. And then on mortgages, there's
really kind of two primary typesof mortgages. And we do both of
them. It's the mortgages thatget sold on the secondary market
to investors. So the investorswhen they buy mortgages, they
like everything to be standard,standardized, everything fit in
a box. And those are themortgage that investors buy. And
(13:32):
those have the best rates, whichmortgage rates today are below
3%, which is kind of why thatwhy that mortgage product has to
be standardized. One thing we doas a community bank that's kind
of unique, we do those secondarysecondary mortgages on the
market, but we also do portfoliomortgages. And the primary
(13:52):
difference between a secondarymortgage in a portfolio
mortgage, we have moreflexibility to underwrite
mortgages that we hold on ourown balance sheet, and that we
can set more of the criteria andhave more flexibility. So kind
of, for example, a lot of ourportfolio loans are business
owners, that maybe their incomechanges year to year, for
whatever reason, maybe capitalgains, were they can't perfectly
(14:16):
fit in that box on the secondarymarket, but it's still a very
good mortgage, will originatethe mortgage, and we'll hold it
on our own balance sheet.
D.J. Verret, MD, FACS (14:25):
And that's what you mean by
portfolio mortgage is thatinstead of reselling the loan,
the bank actually keeps it andservices that that loan until
it's fulfilled, correct?
Josh Burleson (14:35):
Correct. Correct.
We keep the loan re service it.
We do not sell it on thesecondary secondary market. We
talked a
D.J. Verret, MD, FACS (14:43):
little bit about commercial lines of
credit and real estate loans.
Are there other VA loan typevehicles that banks that banks
such as yourself would work withcommercial commercial entities
on And we hear a lot aboutphysician loans where they're
Lower, lower down payments onthe loans. Talk to us a little
(15:06):
bit about some of the variety ofloans that you can put together.
Josh Burleson (15:13):
Certainly, we have the standard commercial
real estate loan, whichtypically physicians we can be
more aggressive as far as downpayments, for example, because
typically physicians have veryhigh recurring income in
salaries. And so it helps usmaybe have less of a down
payment, and a lot more just onyou know, that the income, we
(15:34):
have lines of credit equipmentfinancing, we also provide SBA
financing. So SBA is a uniqueand a good tool for especially
positions that may be startingout or want to make a real
estate purchase. SBA provides,you know, some flexible terms,
there's really two products, SBAseven A, which, you know, for
(15:54):
example, on a building loan,that's typically 90% loan to
value on the costs on a 25 yearamortization. And then we also
offer a loan called SBA 504loan, which allows long term
financing on real estate. Andwhat makes that product really
unique and special. You know,the fixed rate those rates today
(16:16):
on the SBA 504 loan is aboutthree and a half percent to 4%
for 10 years. So the rates onthat product are just really at
all time lows at this point. Sowe offer SBA loans, commercial
real estate loans, we also havea private bank, which kind of
the private bank is reallyfocuses on more than
individuals. It's not theconsumer side, but it's really
(16:40):
just the private bank provideslots of different services,
especially for decisions or alot of our customers in that
group.
D.J. Verret, MD, FACS (16:47):
And when we're talking about those kinds
of loans, they can be secured orunsecured correct and kind of
explain what that means, if youwould,
Josh Burleson (16:55):
certainly. So, a secured loan, it's secured by
the real estate equipment,accounts receivable. But quite
often, we'll do an unsecuredline of credit, and just an
unsecured line of credit.
There's no collateral behind it.
It's purely based on the companyand or the guarantor.
D.J. Verret, MD, FACS (17:16):
You mentioned, a 25 year
amortization. Most people are indealing with personal loans more
or home mortgages, theamortization and the repayment
period end up being the same.
But that's not always the casewith commercial loans. Can you
explain the difference betweenrepayment period and
amortization and how that kindof works?
Josh Burleson (17:39):
Certainly, between the repayment typically
banks will do a maturity of fiveto 10 years on the loan, that
the amortization may last belonger. So for example, if it's
a commercial real estate, thebank may do an amortization of
five to 10 years, say a 10 yearmaturity, and a 25 year
(18:00):
amortization. And what thatmeans is the end of year 10, for
example, the company has to, youknow, refinance it, or the bank
has to renew that loan for alonger maturity, whereas a
mortgage, it's a 30 year, youknow, 30 year term 30 year
amortization, there's there's nomaturity.
D.J. Verret, MD, FACS (18:18):
And when you say amortization, can you
can you go a little bit more indepth about the calculation
involved there? You know,because when when you look at
the, since the amortization andthe repayment are the same, and
in mortgages and home mortgagesthat people will be familiar
with, that that's not quite thesame process, even though the
(18:40):
payments may look like it's a 30year loan. That's not how it
works all the time andcommercial lending, correct?
Josh Burleson (18:48):
Correct, correct, that payments may be made, you
know, the payments are based onit, say 25 year amortization.
But the note at the end of forexample, five years or 10 years,
it matures and it has to be 100%of that note balance has to be
paid off. And so what typicallyhappens in those cases is either
(19:08):
a the bank you know refinancesrenews it for another five to 10
years, or the borrower has topay that loan off through
refinancing it with another bankor through personal means.
D.J. Verret, MD, FACS (19:21):
When when you're looking at commercial
lending, you know, the, againmost people I think are familiar
with the mortgage process andwhat documentation is needed. In
commercial lending, though itcan be a little bit different.
Walk us through kind of theinitial application process and
what that looks like forcommercial lending. Certainly.
Josh Burleson (19:44):
So together initial processes are typical
process it as we you know, willmeet with the customer, learn
about the business learn aboutwhat they're looking for. And
they'll provide us with a with aloan application and all the
financial And we'll go throughthe financials with the company,
determine what they need, whatthey're trying to look for what
(20:06):
we're trying to help them with.
And then we'll issue a termsheet, which outlines all the
terms. You know, interest rate,amortization, personal
guarantees, will issue them aterm sheet of what we're
proposing how to finance,finance, the building, or the
equipment or the line of credit.
And then once they're, you know,kind of approved the term sheet
(20:27):
for us to move forward, youknow, we'll go into full
underwriting and approvalprocess, you know, typically
timeline, typically, it's abouta 30 day process for us to
completely underwriting andapprove alone.
D.J. Verret, MD, FACS (20:40):
And when you talk about financials,
you're in the smaller practicesin particular, you're talking
about both the personal financesof all of the owners as well as
the business finances, correct?
Josh Burleson (20:53):
Correct. Correct.
Well ask for all the financialson the business. And then we'll
ask for personal financialstatement, and personal tax
returns.
D.J. Verret, MD, FACS (21:02):
In my experience in dealing with
community banks, which has beengreat is oftentimes for
additional loans, the processends up getting a lot easier and
quicker, because therelationships been built. And
those financial statements arefairly current and updated every
year, correct?
Josh Burleson (21:22):
Correct. Correct.
You know, we can move once wehave a relationship, and we have
all the information and filesand file if there's a follow on
request, you know, maybe anincrease in the line of credit,
or a new equipment loan, or anew building loan, we already
have that relationship. And knowthat person, and we have all the
financials and we have all thebusiness entity documents, we
can move much quicker once wealready have an existing
(21:45):
relationship.
D.J. Verret, MD, FACS (21:48):
Josh, is there anything else that we
missed in our discussion thatyou think our physicians would
be interested in?
Josh Burleson (21:56):
I would say just just because this is so
important, right now, I've beena hot topic for the last six
months, it'd be PPP payrollprotection program. We
affiliated bank, we really wenton the offense with it. And we
are very successful in theprogram. We did over 1600 loans,
for about over $200 million ofPPP loans. That forgiveness
(22:19):
process is now coming up. Sojust be aware of that being
contact with your bank about thePPP forgiveness. And more
importantly, and something thatwe're really following very
closely, is there's been severalpieces of legislation proposed
and both both the House and theSenate, for there be another
round of PPP funds. I think it'svery likely that there's going
(22:40):
to be another round of PPPfunds. And what that looks like
it's most likely is where seemslike it's going is, you know,
there's gonna be another roundof PPP, you know, be available
to those businesses that werehighly impacted by COVID. One of
the tests that has been proposedis that revenue is down between
25 and 50%. You can qualify foranother PPP loan. I think it's
(23:05):
very likely to get passed, it'sjust taking much longer than,
than what we like, just withwith the election coming up and
politics, everything's takingmuch longer, but I do think
there's gonna be another roundof PPP later this year. You
know, for example, physiciansand physician practices, who
they were shut down for 90 days,I would think it's very likely
(23:25):
they qualify for another PPPlow.
D.J. Verret, MD, FACS (23:29):
Josh, thanks for joining us a lot of
useful information.
Josh Burleson (23:33):
Yeah, absolutely.
Thank you.
D.J. Verret, MD, FACS (23:35):
We've been talking with Josh Burleson,
of Affiliated Bank aboutcommercial banking. You're
listening to Ask Me MD, medicaschool for the real world. I'
Dr. D.J. Verret. Until next tme, make it an awesome w
Announcer (23:47):
Thank you for joining us for another episode of Ask Me
MD, medical school for the reaworld with Dr. D.J. Verret. If
you have a question or an idea fr a show, send us an emai
at questions at Ask MeD podcast.co
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