So what happened? Well... we completed the largest deal in the history of the organization. The largest by a long ways....Seriously, nothing else has even come close. Actually, for a small organization, it was kind of spooky big. Why do I consider the loan scary? Well, obviously a large deal has way more money changing hands, and in the case of a "Fall of Rome" style collapse, the risk to Enterprise is higher than a regular sized loan. And carrying that logic to a more personal level, the risk to my job and house and reputation and... well, you get the picture. These thoughts go through every conscientious lender's mind. It is what makes us human. However, dwelling on these "Eeyore meets Chicken Little" thoughts is the enemy of anyone in commercial lending.
The loan will sit in our portfolio for up to 20 years, so obviously it needs to perform. We feel comfortable with this loan because we sent the summer doing due diligence. I sacrificed my TAN for the loan (honestly, I have kind of a transparent Scandinavian Lutefisk skin, so it wasn't that big of a sacrifice.
Here are some key points we looked at during our process:
1. The Borrowers: We reviewed the borrowers' credit and collateral. Their credit was absolutely top notch and they had enough personal assets to guarantee the loan. They were willing to put enough of their own capital into the start up to show how confident they are in its ultimate success. Finally, they are known as reputable, honest people who give back to their community (character).
2. The Existing Businesses: The existing businesses already operating under the corporation are run professionally and successfully. They have systems in place and keep meticulous records that are necessary to help a lender make a decision. The businesses also have a good enough cash flow position to support the new venture if it starts more slowly than expected.
3. The Proposed Business: The proposed business appears like it will meet the needs of the market and the conditions seem right for success.
This process seems easy right? In theory yes, but we look at every affiliated business within a borrower’s corporate reach, and we review any potential issues each piece of the corporate whole might have. For a normal borrower, this process is easy. This particularly borrower had seemingly multitudes of affiliated business (less than 100, but not a lot less….). We make good loans and have a solid portfolio because of this due diligence process.
Summer is over and the days are shortening. I have no tan and I have gotten a few months older. Sorry there was not a blog for the past few months, but, obviously, a lack of visibility does not mean a lack of activity. It is good to be back.