Spend some extra time with your borrowers’ financials this year

It’s that time of year. Soon your loan customers will be compiling their year-end financial statements and, if their loan agreements dictate, providing copies to your bank for review.

This year, like last, might include some extra scrutiny. PPP money combined with a “not quite back to normal” may make for some financial statements that don’t align with your borrowers’ pre-pandemic financials. Are your credit analysts prepared to assess the borrowers’ financial health, given these considerations?

There’s been a lot of talk of “What’s next for PPP borrowers?” — particularly for banks that welcomed applications from non-customers. Receiving the new financial statements may provide your lenders with an opportunity to have discussions with your borrowers.

Your credit analysts can watch for two things: Businesses that may be in a precarious financial position outside of PPP money received, and those whose businesses have boomed amid the pandemic. Since much of this is related to the industry (think restaurant versus tech firm), you’ll likely have borrowers on both ends of the spectrum.

If your borrowers do not prepare/provide financial projections, it might be worth determining if some internal modeling within your credit department is warranted to look at best- and worst-case scenarios.

Loan officers can sit down and discuss ways that the bank can continue to be there for these borrowers. If the business continues to be negatively impacted by the pandemic, will additional financing be needed to weather the storm? Or, if the business is thriving, can financing help with additional investments?

In either case, an extra step via a phone call or a Zoom meeting can remind borrowers that your bank is there to support them. Last year was anything but normal: open communication with your borrowers regarding their business plans will keep everyone on the same page.