Research undertaken by NatWest showed that the most common stress point in the relationship between a business and its banker is when a borrowing application is declined.
It is when a business, which may have been loyal out of inertia, will look for an alternative bank, because it either has to, or it passionately believes in what it is trying to do.
Many ‘decline’ decisions are justifiable and another banker would make the same decision. However many decline decisions shouldn’t really be conveyed as such – it could be that an effective discussion with the applicant could lead to the deal being restructured or presented differently.
The fact is that bankers are not very good at explaining or justifying these decisions – even business lending suffers from ‘the computer says No’ syndrome. Why is this when it is such a cause of stress in the relationship?
The fact is that bankers get trained in how to handle a deal when it is agreed – there is work to do with a business to get a loan on the books (e.g. validating financial information or perfecting the security) and it is worthwhile a bank spending money on training lenders how to ‘close a deal’ as it generates income.
I once proposed a short training course on ‘How to decline a deal’ – I was almost laughed at by underwriters as their view was that the deal had been declined, we didn’t want to do business on this occasion, move on….
So why would an intelligent banker not be good naturally at saying ‘No’? A number of factors apply:
- Even if they supported a deal originally, if it is declined in the underwriting process there is little hope of getting that decision reversed – so to spend more time on it is just not productive (when they have too much on their plate anyway)
- The decision could have been made on very subjective grounds – such as the bank thinks the business is growing too fast, the sector that they are in is not showing positive trends etc. To explain this is to risk getting involved in a debate with the applicant who will naturally ‘beg to differ’ and those discussions can get stressful – best to just decline it on the basis that it is ‘policy’.
- They might not agree with the decision but cannot reverse it and revealing that would appear unprofessional.
- It could be a policy decision (such as a view on a particular sector, a market or a product) which they don’t understand – policy has been made on central analysis and the banker at the front line has no rationale or logic to use to explain it.
I am often approached by businesses who ask me to find a new bank because an application has been declined for no apparent reason. Often years of goodwill have been destroyed as a result. Sometimes I can see why the deal has been declined and can explain it – usually the client will say ‘Why didn’t the bank tell me that?’ Often we can repackage and represent the deal in a way that it gets done by their existing banker at a second attempt – no need to change banks and goodwill can be restored.
So why can’t bankers do that?