Jeff Judy

Jeff's Thoughts - June 1, 2016

Resume-Based Lending

In every credit process, there is a summary document that presents the case for extending credit to a business. The document captures the results of the credit analysis, and goes to an approver (individual or committee, usually determined by the size of the credit). That document goes under various names -- "credit memo" and "credit presentation" are common terms, you may call it something else -- and it varies in format from one institution to the next.

Regardless of what you call it, your summary document probably contains a section that gives background information on the business's ownership and management team. I recommend you take a hard look at a sample of these backgrounds from recent credits and ask yourself a couple of questions:

All too often, this treatment of borrower information simply lists dry facts about who plays which roles and how long they have been there. It's a history of the business and its key players.

It's a resume. It's not analysis, and it doesn't contribute much, if anything, to a good credit decision.

What's the difference?

A resume captures information from the borrower without adding anything. It generally comes pretty close to simply repeating exactly what the borrower told you.

Analysis interprets that resume. It shares whatever conclusions you draw from what you have learned about the borrower's history.

Let's take a simple example. Let's say that all the main players on the management team have been with the business for at least 20 years. That's a simple fact, sure to show up in the section on management.

But consider two interpretations, two comments that staff might add to this section:

Information about the borrower without interpretation is just padding. Everyone's time is too valuable to be gathering and collecting information that doesn't make a difference.

Good credit analysis starts with collecting information from the borrower. It shouldn't end there. At the very least, the borrower's history should raise further questions. The answers to those questions should influence the approval decision.

Start with a borrower resume, end with analysis, for a healthier credit portfolio.