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Say 'No' if managment is not up to it…

Want to go kayaking? It is a water sport…you are going to get wet on occasion.
Want to be in banking? Lending is risky…you are going to lose on occasion.

The less problem loans, the better. So this is a good time to recalibrate your antenna to detect loans that will work from loans that will not.

One of the big indicators for a business loan is the ability and resources of management.

Signs of trouble:

Management either has not considered or is unable to implement common strategies for navigating through a downturn such as

  • refocusing on core business or customers
  • improving collections
  • decreasing or re-purposing workforce to reduce reliance on outside contracts
  • selling underutilized equipment and leasing as needed until business rebounds

I am not suggesting management implement these specific strategies, or even all the strategies they consider. But you want to know management is considering reasonable strategies and has selected a strategy that is as well thought out as possible in difficult times.

How to decide if they are up to it:

  • Communicate with them besides when they are asking for a restructure.
  • Visit their business. Ask questions about process, or inventory control, or marketing. You may not know what the answers should be but listen to the level they think at and talk about.
  • Ask about the strategies they are implementing, even ones that they tried but did not work, and how they are revising as they go.
  • Where you think their management knowledge or skills may be short, especially if they are in a small business without a management team, find out if they seek help as needed either from outside consultants, their CPA or attorney, or a board of advisers.
  • Consider if they are so ‘in the trenches’ that they have no time to look up, see what is coming, and revise their plans as needed. (My business coach, Lenora Edwards, calls this working ‘in’ the business instead of ‘on’ the business.)
  • Find out if they are active in trade, professional or business associations resulting in access to information and advice from other manager/business owners in their field.

When preparing to meet with your borrower, especially if they are needing to restructure a loan or are reporting a missed covenant, be ready to talk about what they are doing to resolve the problem and any success they are already seeing in that direction.

What other signs of good management impress you when considering a loan?

About the Author
Linda Keith CPA is an expert in credit risk readiness and credit analysis. She trains banks and credit unions throughout the United States, both in-house and in open-enrollment sessions, on Tax Return and Financial Statement Analysis. She is in the trenches with lenders, analysts and underwriters helping them say "yes" to good loans. Creator of the Tax Return Analysis Virtual Classroom at, she speaks at banking associations on risk management, lending and director finance topics.