Coleman Report-Hurn Article and Interview

Coleman Report
The SBA Lender"s Industry Information Source
February 1, 2008
Volume 16, Number 2 - - Issue #319
Robert J. Coleman, Publisher & Editor

What Business Are You In?
Lending, or Marketing the SBA 504 Loan

KEY WEST, January 17 – It"s not often that change agents – especially effective change agents – come along to entrenched industries like SBA commercial loans. “You have to answer the question of what business you are really in,” Chris Hurn challenged the executive SBA lenders attending Coleman"s Executive Management Retreat in Key West.

Hurn, the president and CEO of Mercantile Commercial Capital, discussed the factors behind the numbers – 189 SBA 504 loans worth $303 million – in less than five years.

“I"m not in the commercial real estate lending business. I"m in the business of advertising, marketing and selling commercial real estate loans.”

Quoting Michael Gerber"s The E-Myth, Hurn said, “The first quantum leap occurs when you decide you are not in your business, but in the business of marketing your business.”

“The second quantum leap is to say to yourself – since that is the business I"m really in, whether that was my intent or not, I"d better focus on it, and I"d better get good at it!”

“I spend 85% of my time thinking about marketing,” he told the group.

“Oh, I know how to do the other stuff, I have expertise – but underwriting and administrative tasks are just not the most effective use of my time. I hire other people to do those things.”

With a string of honors to his credit, including being named the Orlando Business Journal"s “Most Respected Executive in Central Florida,” “Top Ten Most Influential Men to Watch” and Coleman Publishing"s “2007 Marketing Guru of the Year,” Hurn has guided his Inc. 500 company to a position of prominence as a leading SBA 504 lender.

Ignoring the BDO Model

When the discussion turned to how the company generates its loans – in other words its income – heads turned as Hurn announced, “We don"t use business development officers – 100% of our business is marketing driven.”

This model eliminates the things business owners, entrepreneurs and sales professionals hate:
• Cold-call grunt work
• Wasting time with prospects who cannot buy or will not buy now
• Price resistance and objections
• Rejection

Targeted Marketing

The solution?

Narrow, precision-targeted marketing that offers immediate quantifiable returns.

“Unless you are a major company like UPS Capital, it doesn"t make sense to use branding type campaigns.”

“I want an identifiable return on every marketing campaign – I want to see deal flow from it” Hurn said.

Each month Mercantile produces a glossy 16-page newsletter full of borrower success stories and campy slogans.

And it works. The 70,000-piece mailing, at a cost of $50,000, generates immediate deal flow – between two and four deals a month – a nice return on investment.

Examples of Past Targeted Marketing Campaigns
• Celebrity Voice Broadcasts (Santa Claus, Leprechaun)
• Hollywood Themed Postcards (DaVinci 504 Code, 24 hours)
• Holiday Cards
• Advertorials
• Email
• Fax
• Public Relations
• Direct Mail
• Unique Direct Mail Products – Prescription Bottles, Bank Deposit Bags, Tubes

So, How Do We Do It?!?

1. Identify a small, manageable number/group of good referral prospects and sources (Market).
2. Design a “story” and an offer attractive to them (Message).
3. Put those in front of them repeatedly over a short period of time using direct mail and other types of “touches” (Media).
4. Continue to “drip” on them until they buy, die or beg to be left alone.

Market more comprehensively and intensely to a smaller, more select number so you can have a real impact . . . instead of spitting in the ocean.

From Annoying Pest to Welcome Guest
Permission Marketing
Push vs. Pull Marketing
Pursuit vs. Attraction Marketing
Positioning, Not Prospecting

. . . all ways of saying the same thing.

Attempting to force yourself on disinterested people is an ugly, unpleasant, uphill battle.

It is better to ATTRACT an already INTERESTED prospect who INVITES you to sell to him.

This is why we don"t cold call - - we take inbound calls only. It"s also why we really haven"t had dedicated external loan officers “pounding the pavement” . . . YET we"ve closed more commercial loans in 53 months than most brokers/loan officers/bankers close in 10 years.

How Mercantile Commercial Capital Does Business
Ignoring the Traditional BDO Model

Coleman: What is Mercantile Commercial Capital?

Hurn: We"re predominately a 504 lender. We like to think of ourselves as the nation"s experts at providing 504 financing for small business owners and entrepreneurs. We always lead with the 504 loan.

Coleman: How do you get your business?

Hurn: One of our methods is to work with brokers throughout the country. We call it our Area Correspondent Exclusives or ACE for short. It"s our way of creating a nationwide network of correspondents.

Coleman: And a correspondent is?

Hurn: A correspondent is someone who represents us – Mercantile Commercial Capital – in a geographic area.

Coleman: Exclusively?

Hurn: Exclusively.

Coleman: What type of person are you looking for to be an ACE Correspondent?

Hurn: The program is only about a year old. We have about 30 correspondents representing us around the country. There are another 130 areas around the country that I"ve carved out where we"d like to put people.

Historically, it"s been residential mortgage brokers trying to get into commercial mortgages – which I know a lot of people aren"t in favor of. But my feeling is that these folks have had a tough time on the residential side for the last 18 months or so and at least they"re smart enough to realize they can"t just keep doing what they"ve always done.

We train them extensively in all our programs, and we have ongoing training, monthly and weekly.

They"re basically our eyes and ears selling in their areas. We take everything else off them – the back office work, we do all the underwriting, the funding and the closings.

We do all the marketing for them as well, so they"re really just our representatives out in their geographic territories selling the products we have.

Coleman: How much SBA experience do they need to have?

Hurn: Quite frankly, we"d prefer that they don"t have any.

Having said that, I think the reason we"re having this conversation is that there are a lot of SBA lenders who have been in the industry for a long time, and who are going to see their compensation plans cut within the next year or two.

Coleman: How much work does an ACE have to do to give you a referral?

Hurn: Some of that depends on their experience.

If you"re an SBA/BDO working for some bank and you"ve done this for a while, you"re going to know how to look at cash flows and determine if it is a deal that will fit within our parameters.

If you"re a residential mortgage broker and you"ve never done a commercial deal at all, the first few times you"ll probably want to have a conference call with one of our staff members and your customer.

Usually all we like to do up front is take a name and a number from you, and we take it and run with it.

We"ve closed loans in 26 states around the country.

In 25 of those states we"ve never met the borrower, and that"s because we are extraordinarily competent working by phone, FAX, and email – we"ve proven ourselves – even with distance with our prospects and clients.

Coleman: You also say your company is a little bit different: you lead with 504s. Do you do any 7(a) at all?

Hurn: No, no 7(a) at all. We refer all the 7(a)s out.

We do this because it"s easier to sell 504 as the best program – there aren"t any conflicts with us.

Coleman: Now the key thing on this that will get some people"s attention is compensation. Tell me about that.

Hurn: Our play is not as a portfolio lender. We sell to the secondary market. We take all the premium income we earn and put it into a pool that we split with our ACEs.

The ACE gets 40% of the premium income for the first tier of sales volume. With the second tier they get 50% of the premium income. And they"re fairly reasonable tiers – up to $2 million for the first tier, and $4 million for the second tier.

In most cases a current SBA lending BDO will double or triple their income if they become an ACE for us.

Coleman: On an average sized deal, with competitive pricing, how much would the ACE make?

Hurn: Our average deal is an $858,000 loan which earns us a little over $54,000 in total compensation.

A 40% piece of that would earn you about $22,000 and up to $26,000 depending upon where you are in the volume tier.

Coleman: In the rest of the market the premiums have been decreasing; how can you say premiums are increasing for you?

Hurn: Quite frankly, because we"re the best at what we do.

We know how to sell. And, we train our ACEs how to sell.

Coleman: Talk to me about territories. How do you structure that? Do your correspondents compete with each other?

Hurn: No, we protect the territories.

The way I break up the territories is by making each territory at least a million people with at least 20,000 small to mid-sized businesses that meet our parameters.

To give you an example, Chicago has three territories. Philadelphia has 3 areas. Montana would be one area, naturally. Idaho has one.

You can extrapolate from there.

For more information go to www.ace-report.com.
Chris Hurn can be reached at churn@mercantilecc.com.

Mercantile Commercial Capital Featured in Coleman Report Coleman Report- 01/08

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