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Credit Analysis & Lender Strategies | Blake Reeves

Blake Reeves, a commercial lender with a niche for small business lending, recently spoke at Delta Trust & Bank’s Fayetteville Advisory Council luncheon, “Well Balanced: A Financial Series for Future Success.” His presentation was well received and led him to create a two part blog series based on his presentation: Part I – Credit Analysis & Lender Strategies and Part II – Things to Consider in Presenting to a Lender.

My dad owned a small business, and I spent a lot of time working with him when I was younger. That time has been invaluable for my career as a banker and really determined the professional path that I would take. I witnessed first-hand the difficulties that a small business owner is faced with, and I know that obtaining funding is definitely a challenge.

As a lending officer, I enjoy working with business owners and assisting them in creating their dream. I believe entrepreneurship is the “Real American Dream” but it comes with many battles, of which a critical, and sometimes an insurmountable one for a small business, can be the lack of access to financial resources.

Part I – Credit Analysis & Lender Strategies

The Five C’s of Credit Analysis

1. Capacity – Your ability to repay
One of the primary factors in a bank’s credit decision is the business’s ability to repay debt.  A bank must know based on historical income and expense trends as well as projections that your company has the ability to service current and future debt obligations.

2. Capital – “Skin in the Game”
Banks want to know your personal investment in your company. This investment shows that you believe in your business and are committed to seeing it succeed.

3. Collateral – What additional security can you provide?
Collateral is typically property that a borrower pledges to secure repayment of a loan. A lender has to think “worst case scenario” and needs security that the loan will repaid.

4. Conditions – Economic & Industry Climate
What are the current economic and industry conditions that directly affect your business?  How are these factors currently affecting your business, and what is your strategy as you navigate the current climate?

5. Character – A lender’s impression that you WILL repay
A borrower’s character is based on reputation but also your credit history, background, and other financial experiences. A lender has to know that you are responsible and reliable.

Lender Strategies 

The relationship between you and your lender is key to a successful banking partnership. When selecting a lender I would advise you to consider the following:

  • Look for a lender with a desire to learn about your business. Enthusiasm from both the lender and business owner creates a great team and is fundamental for a solid banking relationship. You want a lender that is interested in learning about your operations and your product or service.
  •  Talk openly about your business’ success and struggles. Keep your lender informed so together you both can be proactive instead of reactive. Consistent communication will only lead to better planning and the ability to anticipate difficulties or successes.
  •  Keep your lender updated on your future plans so they are prepared when you need to make a move and can respond quickly. Again, relationship is key and if you have a strong relationship with your lender then this type of conversation should occur regularly.

If a lender cannot meet your lending requirements then ask the lender to walk you through why they made that decision. Do not be afraid to ask questions and find out what you need to do to be better prepared next time.

I am more than happy to discuss or further explain any of the details listed in this post.  Part II – Things to Consider When Presenting to a Lender will be published in September.

Blake Reeves
Senior Vice President/Commercial Lender
Delta Trust & Bank

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