In our quest to add more value to our customers, one of the ideas we hit upon was to train relationship managers up to handle the complexities of ESOP lending. Instead of lending to a corporate client, it is more profitable and less risky to lend to the ESOP of that client. Further, few bankers take the time to understand how an ESOP works so competition is limited. Banks can go after existing ESOPs and help refinance their current debt, can work with existing clients to establish ESOPs, or can go after perspective commercial customers and help them establish an ESOP.
Tag: Niche Banking
While many banks have established Employee Stock Ownership Plans (“ESOPs”), few banks have thought about ESOP banking as a separate niche. This might be a mistake as lending to ESOP not only can reduce credit risk compared to lending directly to a company, but a bank can showcase their lending expertise enough to win valuable cash management and deposit business often. In this article, we discuss the profitability of ESOP banking and why banks should consider making this their specialty.