The Loan Request
As a Banker, you routinely have customers who come to you with a loan request. Frequently, that request is verbal and comes more in the form of a question…”I’m thinking of doing this or my business needs that and I’m going to need a loan—will the bank lend me the money?” This sets in motion a process where you attempt to more fully understand your customer’s need, the company’s ability to generate sufficient cash flow to pay back the loan, the value of the collateral that may be required by your Credit team and the sources and uses of the cash flows related to the transaction.
This process can be frustrating for both the customer and for you, the banker. The customer wants an immediate answer. You want information. This can lead to frayed nerves and tremendous stress on your relationship. What drives this frustration and how can it be reduced or removed entirely so that the loan request will be successful?
The Customer’s View
If the customer does not have the appropriate financial expertise at their company, he/she may very well be working so hard in their business that they don’t realize the need for a loan until it is too late. Their priorities are with their customers and their employees. Even though you have reached out numerous times trying to deepen the relationship and learn as much about the company as possible, the customer frequently is too busy to carve out time for you.
For a loan to successfully close, you and your Credit team need to answer at a minimum the questions stated above. To restate:
- Exactly what is the customer’s need and how much of a loan is necessary?
- Does the company have the ability to generate significant cash flow to pay back the loan?
- What is the value of the collateral that may be required to secure the loan?
- What are the sources and uses of funds related to the transaction?
The Role of an Outsourced CFO in This Process
An outsourced CFO acts as a quarterback. He/she knows the company’s operations and financial situation well. Part of the role of an outsourced CFO is to bring together the company’s outside professionals (banker, CPA, lawyer, etc.) so that each one is aware of the current situation at the company and where the company is headed in the future. What that means for you is that there will be no casual/verbal loan requests. Both you and the CFO will know in advance when a loan is likely to be needed. Additionally, the CFO will provide a package of well-analyzed data that you can take to the Credit team.
Armed with the knowledge of the company and a supporting package of data that answers the three questions above (and more), your can become an advocate for the company as its loan request is reviewed by the Credit team. This can lead to more successful loan closings which benefit you as well as your customer.