A friend is a senior credit executive. He is a hands-on leader who spends much time visiting borrowers, evaluating deals, and keeping in touch throughout the entire loan cycle.
When Tim visits a borrower, his mental model is Porter’s Five Forces (left). Every competitive space has its challenges: Who are the customers? Who are the competitors? Who has the power – customers or suppliers? New products in the marketplace? New rivals and potential disruptions?
He wants to know the landscape, and he assesses management’s responses. The approach is a combination of both paranoia and asking the right questions that need answers to determine risk.
Tim asks, listens and drills down to determine that the borrower’s management can communicate their strategies and operating fundamentals in simple, understandable terms.
- Throughout the process, he is asking what there is about this company, and its people that would cause their customers to want to do business with them?
- Is management open and honest? Can they discuss past failures?
- What are the plans, details, financials, and assumptions? What’s been past performance to suggest future success?
- What can go wrong? Who’s accountable? What are the key metrics? Contingency plans?
- How protected are customer relationships, product and service offerings? How might competitors steal their customers?
- What are management’s strengths and weaknesses? Do they have big egos, or are they emotionally grounded?
Your bank depends on making quality credit decisions. No one wants to spend time and money in turnaround and workout situations – but, it does happen.
Minimize the potential for problems up front and stay connected throughout the entire loan cycle.
It is another professional perspective.
Terry Myers, Principal of Business Edge, is an experienced Executive and Management Consultant. He helps companies from many industries bridge the gap to revitalize, restore and optimize stakeholder value