How the Lender Views your Business Loan Application

A lender's primary job is to make and collect good loans. The majority of their revenue is made through interest earned on the loans that they make. However, it's quite easy to lose money by extending loans haphazardly, so lenders have developed strategies to reduce the risks associated with making loans.

Most lenders use a formal loan policy to define the types of loans that they'll make and their method of administering them. These policies may be based on the particular expertise that the lender employs or on the prevalent industries in the lender's geographic location. For example, lending money to finance oil and gas wells in Texas would require a different understanding and expertise than lending for a fishing business on the East Coast. Lenders will generally attempt to operate within the confines of their familiarity to control the risk to their portfolio.

In a loan application the lender is seeking information. This information may be as trivial as the borrower's federal tax identification number or as detailed as a projection of how quickly the operation's inventory will move during the next two years. All of this data helps the lender to assess the business. The lender must be convinced that the borrower understands not only his or her company's products and services but also the factors that affect the business. How well the borrower has run the business in the past is considered to be a fair indicator of how well he or she will operate it in the future.

A frequent complaint voiced by borrowers involves the amount of time that it normally takes to evaluate a business loan proposal. Although many lenders may seem to be inordinately slow, a thorough analysis of a business does require time. On the lender's part, mistakes are generally made not by taking too much time to assess a business but by taking too little. The loan officer's job performance is graded more severely for loan losses than for loan successes. Additionally, borrowers have noted that lenders often seem disinterested in the critical time requirements that the borrower's loan request may have. But time restraints don't relieve the loan officer of the inherent responsibilities of underwriting. If the borrower must have an answer sooner than the lender is prepared to give one, the answer will always be negative.

The better prepared the borrower is in providing pertinent information, the faster the lender will be able to evaluate the loan request. Since the loan officer's job is not to organize the paperwork, delivering disarranged or incomplete information to the lender will only slow down the assessment or even cause the application to be rejected.

The borrower's loan request is similar to a company's effort to sell its product. In many respects, the lender is investing in the people and management of the organization.

When listening to the comments of the loan officer, the borrower must be patient with the lender's lack of excitement, enthusiasm, or understanding. The borrower must not only consider his or her need for funding, but should also be mindful of and attempt to understand the lender's needs as well. Although a commercial loan is a financial transaction, at its base it is a relationship between lender and borrower. The key is the reciprocal comfort and respect between the people involved.

blog comments powered by Disqus