Back to Basics, Continued—The Things Your Lender Looks For

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Dentons

Consumer finance lenders and credit sellers are accustomed to making the credit decisions—that is, determining whether consumer customers are “creditworthy.” What happens though when the shoe is on the other foot? That is, what do banks and lenders to creditors look for in determining whether the creditor is creditworthy? Let’s examine this question:

  • First and foremost, your lender will want to know that you have a strong financial statement that comes about as a result of running your business smartly and efficiently. You pay your bills on time, your current assets are in line with your obligations, and you are making a reasonable profit.
  • Are your accounts performing in an acceptable manner? Interestingly, this doesn’t mean that your write-offs are near zero. In fact, if they are, your credit decisioning may be too restrictive. That is, some percentage of write-offs is healthy—showing that you aren’t leaving an opportunity on the table.
  • Stability of employees and management is a factor that is more than merely intangible. CSRs, office managers and district managers who “know their stuff” are invaluable to the success of your company.
  • Lenders to the industry want to know about the different loan products that you make available to your customers; and, they will undertake an analysis of the loan terms of the various products.
  • Systems that work are critical. But, this is, more than just a review of your software platform. Employment practices and policies and debt collection practices and policies that are followed are essential to a lender’s determination of your creditworthiness.
  • Your information security system is an important part of a lender’s analysis of your business.
  • Of course, licensing, government regulation and litigation are always on their checklist.
  • And, last, but certainly not least, banks and lenders to creditors look for sound compliance management. After all, the consumer finance industry is so highly regulated, your lender wants to make absolutely certain that you have a good compliance management system in place with all major components—including those addressing documentation, complaints, UDAAPs, privacy, advertising and marketing.

Practice Pointer: You may not have been “audited” by your lender lately. However, just as winter follows fall, you will be. So, take this time to get ready and get prepared.

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