Getting beyond Loan Pricing. 4 Keys to Assessing Prospective Lenders.

In the internet world of commoditization, price and availability rule.  Every product that can be put in a brown box and shipped, is available on line at an unbeatable price.  Amazon has created this new standard of expectation for consumers – immediate fulfillment and lowest price.

This extends to digital services such as banking and lending where internet lenders have made big inroads.   Many people and even businesses now go to the web to source capital be if for a mortgage, a short term loan or a line of credit.

It offers lenders and borrowers great efficiency as a connecting platform, and can automate much of the dreary manual process of applying for a loan.  But as the old saying goes, when you live by the sword, you die by the sword.

Overdependence on the internet can be dangerous when you are trying to do something that involves multiple purchase variables.  Obtaining a loan should involve far more purchase variables than just immediate fulfillment and price.

It should involve more subtle variables such as lender reputation, how easy they are to work with, how flexible they are once the loan is made, and their track record of delivering on closings.   These factors are often soft, hard to discern things that the lender does not necessarily talk about on the front end, nor the eager borrower dwells on.

Choosing the wrong lender, based on the wrong set of purchase variables, can be a disaster for your business.  Think of a lender as a key vendor who supplies you a key resource –capital.

I would argue that most lenders are critical vendors to growing companies.  If you get the right lender, it can have a force multiplier effect on your business and help you grow at a previously unthinkable rate.

If you get the wrong lender, perhaps because you were myopically focused on immediate fulfillment and price, it can drag you down and cause you to miss opportunity.

Due to the impact of the lender of your business, it pays to slow down, bring in an expert and think deeply about all of the purchase variables so you make a fully informed decision.  Here are 4 keys to assessing prospective lenders.

1. Learn how they handled a tough deal – the best way to learn how a lender behaves is to see how they dealt with an underperforming company. Did they call the loan right away, were they patient and give the company to work things out.  This will give you good insight as to what type of partner they will be if you encounter some turbulence in your business.
2. Assess how committed they are to your type of loan– sometimes lenders decide to get out of certain segments and decide to sell a whole category of loans. Make sure they are well equity capitalized and are in it for the long haul.
3. Learn where they are in the cycle – all lenders go through ups and down and sometimes they push harder for new business. If they are looking to add assets, your loan is more likely to get approved. If they are dealing with a large book of underperforming loans, you have more of an uphill fight.
4. Do due diligence on the lender – turn the tables on them and inquire about their credit process, other customers, areas of expertise and internal operations. Most lenders operate regionally and it is easy to learn what type of reputation they have by querying lawyers, accountants and investment bankers.