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The Mind of a Commercial Lender

Posted by: Chris Caldwell on Thursday, January 10, 2013 at 12:00:00 am

Have you ever wondered what it is that your banker is really looking for when they talk with you about a credit request?  Well, wonder no more, I invite you into the brain of a commercial lender (enter with caution as it is a scary place!) 

  1. Have you developed and maintained an ongoing business relationship with your banker?   Bankers need to have an ongoing dialogue with clients to best serve their needs.  We are here to provide money, certainly, but we are also here to establish a long term relationship whereby we can help our clients achieve their goals.  Whether it is remote deposit or online banking, ACH or wire transfers, your banker has the products and services that can help our customers grow.  But we cannot do that if we do not know what those goals are.
  2. Does your business need a loan -- or an equity infusion?  Banks are interested in making loans; they are not interested in being the owners of the business.  Equity is that device that helps a business weather a storm, loans are those tools that help a business grow and operate.  The two are mutually exclusive.  Banks are in business to make loans.  Equity funds should come from the business owners.
  3. Can you clearly explain your firm’s “value proposition?”  If you cannot explain why a business should do business with you then stop what you are doing, figure that out, and then resume whatever it was that you were doing.  Why should someone buy from you as opposed to your competition?  That question needs to be clearly (and concisely) articulated first!
  4. Do you have a plan that covers the good, the bad, and the ugly?  Things happen, and sometimes you have to figure out what that means for your business.  To always assume the “good” means that when the “bad,” or worse yet, the “ugly” happens the business isn’t prepared to handle the outcome.  So . . . what are you going to do in your company if it gets “ugly”?  If you can answer that question you will be in much better shape to help your banker help you.
  5. Have you developed at least two ways to repay the loan?  Bankers have an axiom that goes like this “only cash repays loans.”  There, that is our great big secret.  Now that you know that then you know how we view the primary source of repayment.  But how else can the loan be paid off if the cash isn’t being generated for some reason (see point #4 above).  If you can demonstrate how else the loan might be repaid you have helped the bank and they in turn can be more helpful to you. 

So now that you have seen into the mind of a commercial lender I hope you will take away from this discussion that it isn’t too scary a thought process.  Indeed, the more certainty that the banker has that the loan will be paid “as agreed,” the more likely that you will not only receive a favorable loan decision, but also the best interest rate. 

Your MutualBankers are here to help you accomplish your goal. Get started by contacting a MutualBanker near you!

 

Chris Caldwell is Senior Vice President of Business Banking for MutualBank.

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