During the past year, my business of helping find SME’s debt financing has led me to Wells Fargo a number of times. Wells Fargo Business Credit is a very strong asset-based lender and the SBA group at Wells Fargo is outstanding as well.
My company has placed a number of SBA loans with Wells Fargo this year. My research has let me to believe that they are currently the most successful SBA lender in the country. They have a strong underwriting group and each of the Wells Fargo SBA loan officers I have dealt with is very knowledgeable about the many complex SBA guidelines and rules.
Recently I had a conversation with a knowledgeable Wells Fargo commercial lender based in the Midwest. After 18 years in banking I recognize a strong banker when I talk to them, so when this banker offered several observations about the credit market, I listened intently.
As the recession drags on, bankers are able to see a company’s historical response to their situation and make a determination of management’s strength based on what they see. Part of Wells Fargo’s due diligence is now to look at how a business has thus far survived (or thrived) in the tough times. Some questions bankers at Wells Fargo are asking are:
Did they cut costs early?
Did the business increase emphasis on managing cash through better collections of receivables and prudent management of payables?
Does management have strong systems in place to monitor their operational activity on a day to day and weekly basis?
Does management know what the most important key performance indicators are for their business and are they tracking them?
Has the company been careful about diversifying its customer and vendor base?
How have vendors been treated when cash was particularly tight?
Does the business have a sustainable business model that will carry it into the next 5 years?
Companies big and small that have shown their ability to manage these and other aspects of their business are the kinds of businesses lenders want to make loans to.
Unlike many other banks that have no real strategy for lending money during the next 24 months, the Wells Fargo lender I spoke with articulated a well thought out practical strategy that will likely be successful. He said his bank while continue to focus on the analytical measurements of a business’ performance, liquidity, leverage and cash flow. However, in a break from traditional banking thought, his bank has indicated to its field loan officers that they should be looking at the business borrower’s operation to access how well they have done in making meaningful operational changes to their business during the last tough two years. What I am talking about is developing and using best business practices.
Business owners must juggle many balls in the air simultaneously. The ones who are doing that successfully are more likely to stronger loan candidates than those who have no clear direction and strategy.
How much weight the best business practices will carry in credit decision making is yet to be seen, but it won’t surprise me to see Wells Fargo and other banks that are loaning money raise the bar to the level that requires the best business practices I mention above as a minimum standard.
The silver lining in the cloud will be that operationally stronger more seasoned businesses will be able to secure credit to grow. If you aren’t a business owner or manager who uses best business practices in your day to day management, now is the time to start doing it. With a rough 2010 in front of us, there is still plenty of room to improve.