December 4, 2008

How can I help my business borrowers?

Read more about the Tax Return Analysis Quick Reference Guide

Your question:

As retail drops off and real estate market challenges impact our local area, what can I do to proactively help my business borrowers?

Linda says:

Be sure your analysis skills are up to speed and you are communicating the work you have done to consider the risk in your loan write-ups. Of course that’s essential. Here are some additional ideas to be of service to your business borrowers.

Maybe this would be a good time to take a page from the CPAs…

When CPAs schedule an annual review with their business clients, they spend some time on the financial statements. Can you schedule a session with each of your business borrowers to review their statements with an eye towards helping them see possibilities or spot problems early?

If you are newer to lending, perhaps you can buddy up with a more senior lender to put together some information that will help your business borrowers come through the downturn in good shape?

Or, if you think this would actually make your business borrower’s nervous (why is the bank looking so closely now???), how about a joint workshop with a CPA firm and other referral partners? Ask the CPAs to share with your business borrowers some of the areas for improvement they might look for in their financial statements, or early warning signs to watch for.

The President of Sageworks Analyst, creator of ProfitCents, suggested what a CPA should include in an annual review in his October 2006 article entitled: Why Your Clients Need a Financial Check-Up Once a Year. The ideas he suggested for CPAs may work for you, too, and are maybe even more relevant than in 2006.

Here are some basic things that should be done in each of these sessions:

1. Explain the financial statements in plain and easy-to-understand language. The worst thing to do is turn these sessions into one-way communication where clients are lectured and may not understand the issues being discussed. Numbers from a Balance Sheet or Income Statement don’t mean anything to the average and highly intelligent business client. Break things down and make sense of the financial numbers for clients. This point is vital.

2. Develop some understanding of margin management. Most business people don’t understand the importance of margins. In many businesses, either the gross margin or the net margin drives the business most. (Gross margin is Sales less Cost of Sales divided by Sales. Net Margin is Net Profit divided by Sales). Many good business people think that the key to success is increasing sales volume. They don’t have an appreciation for how volume increases both cash and profit. Many times, increases in sales may decrease profits or sales or both.

3. Point out some very simple areas the business person can work on. In my experience, the vast majority of businesses are driven by three or four key pieces of data. If these are managed well, the business does well. If they are not managed well, the business does not do well. It is important to try to identify these before the session.

These sessions should be informal and brief. If the session goes well, you will be viewed as a true strategic partner by your client; as a friend and ally. If it does not go well, then at least the client will know you care. In all likelihood, your clients will be surprised and impressed that you took the time to help them.

As you read those ideas, did you find yourself thinking “My business borrowers are more sophisticated than that.” Maybe so, but make sure before you assume.

Find a way to reach out and help your business borrowers. Let them know you are still in business, and in business to help them.

(Oh, and by the way. I am still in business and in business to help you. Our online training is up and running and our Find a class scheduled three times a year, like clockwork. How can we help?)



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Linda Keith, CPA

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.

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