Jeff Judy

Jeff's Thoughts - February 17, 2010

Why Not Why?

The conversation with a credit applicant can be a delicate dance. You need the best possible information, not only about what has happened in the borrower's company, what the numbers show, but about how the numbers got that way. Better credit decisions can be made when you can build a picture of how company management reacts to challenges and opportunities, of what experience, talents, strategies, and resources they are likely to apply to their business when things do not go quite according to plan.

The most straightforward approach to gathering this broader information, and building this more complete understanding of the borrower, would seem to be to simply ask them why they do what they do, or why the numbers are as they are. It's a natural response: "Why is there a change in receivables over the last year?" "Why are you building a new facility?" Or, when the borrower talks about a new initiative, a response to a challenge, a shift in the way they do things, a need for resources, you simply ask them, "Why?"

Again, this is a natural reaction to what the borrower brings to the discussion. So it is also natural for participants in my seminars to look at me a little a little funny when I say, "Don't ask why!"

It isn't that "why?" is a bad question. I just believe that breaking "why" down into its component parts can get you more, and better, information for several reasons.

First, replacing a single "why" question with two or three questions keeps the borrower talking about what they saw, how they responded, and what factors contributed to their choice of response. And the more they talk about the key issues, the more opportunity you have to see how things work in the company, to see reality and not just the "prepared presentation" picture of what is happening.

So, when it comes to that new building, if you simply ask "Why?", they say, "Because we need space to grow." But what if you say: "Describe the process that led you to decide to build. What other options did you seriously consider to meet your needs?" I'm sure you will learn much more, not only about whether that's a good decision for the business, but about how management makes key decisions that affect their financial health.

Second, asking questions that generate more concrete and complete descriptions of situations and responses opens the door to exploring a wider range of solutions, including what the bank can offer. When you get into a more thorough discussion of key elements of the borrower's business story, you can do a better job of proposing loan structures, and other products and services, that work for both the bank and the borrower.

Finally, when you ask "Why?" you tend to get personal responses: "I thought that . . .I decided . . . I felt . . .". Then, when you suggest that there might be other approaches, or probe for details, the borrower can feel offended, because you are challenging their intelligence, wisdom, business experience, or integrity. Getting at "why" through other kinds of questions makes it easier to focus on more objective details, keeping communication open and optimizing your chances at a win-win outcome.

Why not give "Why?" a rest in your next credit conversation?