CASE STUDY 1

Golden Valley Funding, GFV is a non-bank financial company that makes loans for the financing and refinancing of commercial properties across the U.S. The company does not take retail deposits, paying market rates on bonds issued to provide the funding for the loans they make. Loans are packaged into real estate related financial instruments and sold to investors.

The company has been around for 4 years, starting as an offshoot subsidiary of a large real estate focused lending organization.

Golden Valley makes commercial loans supported by property in the $500,000 to $2,000,000 range. This market segment is enormous in the U.S. and GFV is shooting for a fraction of the overall volume of the type of business they target.

Most loans are for 5 years with an option to renew for another 5 years. The rates charged are about 2.5% higher than commercial bank. GVF requires much less paperwork than banks ask for and can close a loan in about a third of the time it takes for a commercial bank to get a deal done. The company wants to see personal credit scores at about the same level as those required by commercial banks. Properties must go through the normal appraisal process and GFV will lend 75% of a property's appraised value, about the same as a commercial bank.

The structure is fairly simple:

• A 12-person sales team located around the country, reporting to a Sales Manager. They are paid a low salary and a commission on closed deals. The salary is not enough for a family to live on putting pressure on the team members to sell and close.
• A head office comprised of

o The CEO

o Loan operations - 3 people

o Credit administration - 3 people

o Marketing - 3 people

o Project Management - 1 person

o Data Analysis - person

The Sales Team structure is less than a year old, replacing a 6-person team that did not have a designated manager, each salesperson reported to the CEO. The Marketing team was cut from 7 to 3 people, late last year, with the more senior people let go and an under 30 member of the original marketing team put in charge of marketing strategy.

The business model is for the marketing department to brand, market, advertise and acquire leads through digital marketing, (email, webpage, blogs, magazine articles, social media, SEO marketing, etc). These leads are passed to the Sales Team who then follows up with the potential clients. Once an application is filled out, the process moves quickly and smoothly through credit, operations, closing and disbursement.

A typical property financed would be a 10,000 square foot warehouse, used for a farm equipment rental business outside of Ocala, Florida.

GFV would say their competition is Rocket Mortgage, Silver Hill Financial and similar companies, along with local and national commercial banks.

After a slow start, Golden Valley is now closing an average of $32 Million in loans per month. This is well ahead of the $5MM per month last year and the two previous years of basically zero activity as the business was gaining traction.

At a recent managers' meeting, the CEO of GFV showed some slides and made a comment along the following lines:

"Though pleased to be moving along finally, the $32MM per month is right at half the projected figure from the top down budget put in place at the beginning of the year. There is lot of pressure on us to produce more."

1.1) What is this company's purpose?

a) Compete with Rocket Mortgage

b) Provide financing for commercial mortgages

c) Produce $32MM in loans per month

d) Explore ways to obtain retail deposits

2. What is the "gap" between where GVF is and where they want to be?

a) Find new loan products

b) $32MM per month

c) $64MM per month

d) Not enough lending products

3. There seems to be a problem with the credit approval process in terms of speed of approval.

Group of answer choices

True

False

4.The competitive advantage GFV has is:

a) The amounts they are willing to lend

b) Lower than bank financing rates

c) No credit requirements

d) Quicker loan closing process

5,To sustain this advantage, GFV should:

a) Work on growing loan volume

b) Look to acquire another lending company

c) Double the size of the Sales Team

d) Ensure the approval process remains quick and painless

6.An option for the Sales Team would be to:

a) Add sales people to get more volume

b) Start a program of direct sales by the sales team

c) Ensure the Director of Marketing and the head of the sales team work closely together

d) All of the above

7.The marketing team:

a) May be too large in view of the overall size of the company

b) May be too small in view of the dependency on this team to produce leads

c) Should have kept the more senior head person from the first 3 years of the company's existence

d) Should be happy they went with a younger, digital savvy head of the unit

e) Both a and c

f) Both b and d

8.The Data Analysis person:

a) Is key since the company's client acquisition effort is based on digital marketing and accompanying analytics

b) Seems like an excessive member of a real estate lending based business team

9.The budget of $64,000,000 per month

a) Is appropriate since it was set by the CEO of GFV's boss

b) Seems too high based on the company's track record of loan volume over the past 4 years

c) Is a classic form of a "Proximate Objective" that we saw in the Good Strategy/Bad Strategy book

10.The rates charged by GVF are higher than those charged by commercial banks. Customers accept this because:

a) The credit requirements are less onerous and stringent

b) GVF is willing to finance a larger percentage of the appraised value of the property

c) The approval and overall deal process is faster

d) GVF is willing to finance farm equipment when big banks avoid this type of lending

11.The CEO should:

a) Pass on the pressure she is getting from her boss to make sure everyone works harder to meet targets

b) Break down the input and pressure she is getting into clear and manageable tasks and targets for her team to accomplish

12.GVF is producing half of desired monthly volume, which is 6 times more per month than last year. The CEO should make sure her team leaves the meeting:

a) Happy with their results

b) Unhappy with their results