Year-end Planning for Commercial Lenders: Visiting Your Borrowers
Fall is a convenient time of year to pay a visit to your borrowers’ facilities. Everyone is back from summer vacation and focused on business operations before the start of the hectic holiday season. Here’s why you can’t afford to not conduct physical site inspections on a regular basis — and what to look for.
Borrowers may be unreceptive to unannounced visits, so frame your visit as a year end planning meeting. To break the ice, offer to bring coffee and doughnuts to the office staff. Most borrowers will proudly show off their operations and view your visit as an opportunity to reinforce their lending relationship. Reticent borrowers could signal a red flag.
You needn’t be an operations specialist to glean valuable insight from a site visit. Be ready to ask owners and employees lots of questions. And always keep your eyes and ears open for insight into the borrower’s current operations.
For example, when visiting manufacturers and distributors, evaluate whether the workflow layout is organized, efficient and safe. Walk out to the loading docks. Note if trucks are being efficiently loaded — or if partial truckloads leave at random times.
For retailers, re-create a hypothetical customer experience. Are salespeople approachable and knowledgeable? Are shelves organized and adequately stocked? Is it easy to enter and exit the store? When you get back into the office, check out the company’s website and social media pages. Today, a retailer’s online channel can be just as important as its brick-and-mortar store.
Generating additional revenue
As your borrowers change and grow, so do their banking needs. During your site visit, ascertain whether the borrower could benefit from online banking options, lock boxes for customer payments, a credit line to bridge seasonal gaps or an interest rate swap on its variable rate loans. Site visits are the perfect time to upsell additional offerings.
Also, arrive prepared to discuss refinancing opportunities. Borrowers know rates are at historic lows — and may soon be increasing. Some customers may be quietly shopping around. Before your visit, research what you can offer in terms of interest rates, loan duration and credit limits. If you don’t, you might lose the business to a more assertive competitor.
Catching distress early
By conducting site visits in the fall, you may detect problems before distress symptoms appear on your customers’ year-end financial statements. Potential warning signs of financial distress include:
- High employee turnover,
- Idle workers,
- Broken equipment,
- Dusty, obsolete inventory,
- Frequent returns due to quality control issues, and
- Fixed asset auctions.
Sometimes it’s advantageous to ask for a manager — other than the owner — to show you around the site. Company insiders often know their employers’ secrets. Once out of the owner’s sight, employees may spill the beans about problems and concerns. In some situations, you might recommend that the owner bring in a professional management team to help remedy potential problem areas.
Site visits are especially insightful when a borrower doesn’t provide independently reviewed or audited financial statements. Compiled financial statements and tax returns — even if prepared by a CPA — rely exclusively on management representations without independent verification.
Getting the most from site visits
Site inspections do more than add a personalized touch and engender loyalty. They also provide lenders with an early warning system about changes that may affect a customer’s need for additional bank products and services — and its ability to service debt.
Have questions about year-end planning? Or, are you looking for more information on our commercial lender services, including SBA valuation? Contact David Lee at 404-874-6244 or fill out our form for more information.