Honesty is powerful and it is one of those things you either have or do not. In business, those conducting themselves honestly generally last longer and have more economic opportunity because business is about relationships. In lending, a loan request is best carried forward when a borrower is able to share freely the strengths and challenges facing their business. An experienced lender understands that threats and challenges are always looming and it is those owners able to clearly describe past mistakes and learned lessons that are more likely to be approved for financing. If a lender does not understand a borrower’s request or gets the feeling (s)he is being misled and/or information is omitted then it is unlikely a credit approval will be obtained.
A lender walks the line between borrower and credit officer working to satisfy both parties and should be viewed as a borrower’s advocate. In applying for credit or renewing an existing facility, the job of the borrower is to educate the lender on how the borrower’s business functions and how they will be able to make payments on time and in full. The speed at which a lender can comprehend the mechanics of a borrower’s business determines the speed of a decision. Said another way, if the lender does not understand a borrower’s business they move more slowly; collecting information in batches until they are able to explain to their institution why a borrower is a good risk and would be a good relationship to keep. A lending institution needs enough loans to amass a portfolio large enough to generate income to pay for the overhead and salaries of the institution. If profitability is not achieved which can be hampered by making bad loans, over time a lending institution will cease to exist. A lender fulfills the role of production and is on the front lines of their institution whereby it is their role to find lending opportunities and bring good borrowers forward to a credit officer and explain why the loan should be made.
A business owner can help a lender be an effective advocate for their loan through proactive communication in sharing “the full story.” In addition to sharing financials to determine debt service coverage ratio, liquidity, and collateral coverage, a borrower helps themselves by working to identify key risk points to their business such as customer concentration or controlling costs in a declining market or growth management.