Financial statements, strategic plans and other financial documents provide essential information about the health and prospects of your borrowers’ businesses. Why do you need anything further? While paperwork is essential to your due diligence, to really understand a company’s operations, you need to see what’s happening.
Make it pleasant
Borrowers may be unreceptive to unannounced visits, so frame your fall 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.
Also follow the company on Facebook and other social media sites to keep tabs on operations after the site visit. You never want to be the last to know what’s happening with your borrowers. Retailers are especially likely to post about major events that are relevant to shoppers, such as a grand opening of a new store, a liquidation sale or the retirement of a long-time manager.
Suggest additional services
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 still fairly low compared to historical rates — but they’re expected to gradually increase in the near future. 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.
Nip problems in the bud
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 and dusty, obsolete inventory. You also may become aware of 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.
Stay up to date with borrowers
Nothing can take the place of a thorough and discerning site visit to alert you to any potential borrower problems or concerns early. And scheduling a site visit can help cement your lending relationship and improve your understanding of your borrower’s potential financial needs.
For questions, please complete the contact for below or contact Paul Atkinson at 404-874-6244.