Three Faces Behind Every Bank Loan
When I started my consulting practice, I spent a lot of time with bankers. I learned what they liked in a business and what they avoided in terms of business models and certain loan structures.
I became so enamored with the process that I thought about only doing loan packaging for startups and CEOs needing help on complex financing projects. My better judgment told me to stay away from niche-oriented work as it can be feast or famine, and both are equally frustrating. Still, I learned early in my career about the three distinct roles in bank financing. Knowing them will help increase the odds of acquiring that new line of credit or term loan.
You know them by a different name, a corporate lender, a loan officer, or a relationship banker. They are the banker you’ll meet on a golf course, Rotary, or through an introduction from someone in your inner circle. Most are people-oriented and do everything to help you to secure a loan with their bank.
I call these bankers advocates. If they like our financials, the management team, and our business model, they become the person who works behind the scenes with the other two roles.
When pitching a loan request to the person I call the advocate, there’s typically a second meeting that includes the credit analyst. If I like them, I call them the analyst. If I don’t like them for reasons that I’ll explain later, I’ll refer to them as spreadsheet bankers.
The job of the analyst is to review tax returns, audited financials if we have them, and our internal financials. They’ll do spreads with our numbers which is a way of saying they compare our key financial ratios with others in the industry. Their job is to keep their employer from making a bad loan.
I’m financially ultra-conservative. I’ve never had a client loan go bad. I’ll never bring a bad loan to a bank. When I start getting pushback from a spreadsheet banker (no longer viewed as the analyst), it’s because they are missing a bigger picture of the business model. Or they are missing the strength of the borrower (my client) who will never let the loan go bad. They are only focused on numbers in a spreadsheet as opposed to the abilities of my client to win on their business turf.
If you are wondering if analysts can be a thorn for the lenders or those advocating for us, the answer is a resounding yes. While they are supportive of us, sometimes, sometimes they just can’t budge the analyst.
There have been several cases where I’ve walked away from a bank because the spreadsheet banker was not in alignment with me and my client. That’s why we always shop for new loans with several bankers because we’ll periodically encounter a spreadsheet banker who doesn’t get our business.
I’m not totally negative about analysts. I generally think like them. Occasionally, they will miss some of the risks of the loan request that I will point out to them. I like analysts that I can reason with and state my case. Some are great in this regard, but a few are not. Don’t be afraid to walk away if the analyst is too rigid.
If we get past the analyst, then the final step toward approval is the loan committee which might meet weekly or only monthly if it’s a small bank.
You may not know who is on the loan committee, but our advocate will tell us if we ask.
If I know that a regional president has a chair on that loan committee, you can guarantee he’ll be invited to a meeting at my client’s office along with the loan officer when we have one of those early meetings to talk about our business. That means the loan committee member is getting first-hand knowledge about our business, the leadership team, the customer base, and the financials.
During loan committee decision-making time, we don’t want them to have to think a lot–we want that approval to be a mere formality. Getting to know one or two members of that loan committee helps in getting the loan approved.
More Than an Advocate
When I did my first loan packaging earlier in my career, I thought the loan officer (the advocate) was the key to approval. They have to believe in the business, the CEO, the financial track record, and the future of the company. But they are only one-third of the approval process.
The advocate, the analyst, and the assembly. Know who they are, understand what they want, and get to know them.