04 Jun The Blue Chip Borrower

By Ian Robinson

Pub witticism amongst borrowers has gone along the lines of, “If you borrow a small amount of money and you get into trouble, it’s your problem.  If you borrow a large amount of money and you get into trouble, it’s the bank’s problem”.

Two quick responses to that remark.

First, it is frightening to observe that some borrowers annunciate that this is their underlying guiding philosophy.

The second is that you should not get into trouble in the first place.

It is not the size of the debt that makes you noteworthy or credible within the realms of banking, it is the universe of fundamentals represented to the lender that supports your debt.  The size of the debt is only relevant in connection to the principles supporting that commitment.

A small debt can be more troublesome to a bank than a large debt.  On the flipside, adding some additional debt to a business in the form of some key strategic investment, could reduce the risk of the potential “troublesome” nature of the primary debt.

So, what makes a borrower Blue Chip?  Here are our 5 key takeaways from years of being in the trenches of debt procurement and management;

Takeaway 1

A borrower who clearly understands where the thresholds and limitations of their lender are.  They consistently operate with a comfortable margin within these limits.

This can be challenging at best as it entails understanding bank policy at a technical level, not at an advertised vanilla level.  There is a large knowledge void between the two.

Takeaway 2

A borrower who clearly understands what critical information a lender needs so that the lender can rate the borrower at its highest possible level given that point in time.

This information needs to be relevant, timely and accurate.  A break down of any these elements undermine this capacity for leverage.

Takeaway 3

A borrower who has developed a high EQ (emotional intelligence).  They clearly understand that lending is a relationship driven process under a professional framework.

Do not mistake relationship with loyalty though as this could be costly.

Takeaway 4

A borrower who understands what the key drivers of the bank are.  These include the bank’s internal motivators, culture and behaviours and that of their bankers in order to position their vocabulary in a supporting collaborative mindset and not one that is contradictory to the bankers and bank’s ambitions.

This law of cohesive mindset is generally broken accidentally and not deliberately.

Takeaway 5

A borrower that investigates and benchmarks the performance of their bank as a key input to their business over one that doesn’t.

Business in a capitalist regime cannot afford lazy inputs in such a competitive environment.  Blue chip borrowers ensure that their lender is providing the highest performance of inputs (service, pricing, capital flexibility, funding security) and continually do so on an evolving basis.

There is a lot to consider when, on most occasions within the lending landscape, banking is considered set and forget until something goes wrong or something is needed (quickly).  Then a reactive pressured environment ensues creating angst, frustration and sometimes, heart palpitations.

As our opening line suggests, a borrower should never get into trouble in the first place.  And layered on top of this, a borrower should have a high performing funding platform that achieves the objectives of the business at any given time within the business cycle.