There is a constant and understandable conflict that exists between most origination and credit underwriting organizations. When an originator meets with a prospective borrower/lessee and hears the leadership’s passion for their business, and explanations for blips in the company’s credit history, the originator often becomes a believer in the company and the prospective transaction. Credit on the other hand takes a more sterile view that requires analysis of data, history, numbers and peer group comparisons. This analysis is, and must be, devoid of emotion and hopefulness in order for the lender to make a truly informed credit decision.
We are not talking about trying to force a bad deal into an approval; to do so would lessen a sales person as a professional. This is about the marginal credit that you (the originator) believe should be approved by your company. When you ask credit to re-evaluate their credit decision and possibly deviate from their stated guidelines, your reasons must be based on facts.
Getting applications approved in this current economic environment is an art form that requires all of us to be artists. Credit professionals are looking at deals more closely and asking for greater detail than in the past. And today, credit underwriting policies and guidelines are more fluid and may change at any time making the process even harder to navigate for originators.
The best way to get your marginal deal approved is to gather as much information as possible from the borrower/lessee so that credit has sufficient background material to justify a credit decision. Thinking a deal may sneak thru the process is a fools game.
The required information must address a company’s past, current and future financial situation. It should also include industry background and market conditions that affect the prospective borrower/lessee. And today more than ever, originators must tailor their questions to match each individual circumstance within each specific industry.
A possible list of questions for your prospective borrower/lessee must include:
- How long have you been in business?
- What is your company’s niche in the market?
- Who are your main customers and do any of these customers represent a significant percentage of annual revenues?
- What are your company’s products and what position do these products hold in the marketplace versus your competitors?
- What specifically differentiates your products from your competition’s products?
- What are your company goals for the next two to five years and what changes are being instituted to ensure you achieve these annual goals?
- What caused the downturn in your company’s performance (if applicable)?
- When, why and how do you expect to rebound financially?
Today more than ever, it is essential that originators clearly understand their company’s credit policies and underwriting guidelines. But you must also clearly understand the prospective borrower’s/lessee’s inherent industry risks (e.g. construction, transportation, manufacturing industry risks within specific geographic markets). Who, what, why, where, when and how must be answered with completeness and authority.
In troubled times, the originator who possesses the ability to create solutions specific to the borrower’s/lessee’s issues PLUS an understanding of specific industry risks, will be the champion.