To Borrow or Not to Borrow?
In my personal life I am debt-averse – I don’t like to borrow money. Many of my readers may be like me in this respect – you know the dangers of abusing credit cards, and why pay interest on a car loan unless absolutely necessary? I do still have a mortgage loan on my home, but I’m working to pay it off as soon as possible. So what is a guy like me doing in this business? Ironically, I’ve made a living for almost twenty years teaching commercial credit analysis. That is, I facilitate the borrowing process by training people like you to underwrite and structure commercial loans, thus allowing businesses to finance their needs through bank borrowing. Why?
Why Banks and Businesses Need You
You may not have thought much about it but almost every business in your town has a borrowing relationship with a bank. Consider:
- Borrowing for Burgers – When you stopped into your favorite burger place today at lunch, did you think about how much it cost to construct that building and to pave the parking lot? It’s likely that the owner of that real estate — either the restaurant owner or a developer who leases the building to the owner — borrowed funds from a bank to finance the construction. If a bank had not been willing to take the risk of lending that money, the business would not be there (and you’d be eating peanut butter and jelly sandwiches for lunch).
- Financing Fertilizer – Every year here in Ohio when the weather transitions from winter to spring, thousands of people drive to the local nursery seeking mulch, sod, flowers, and other seasonal items. Of course the nursery is always ready with shelves stocked full of inventory, all of which was purchased last month when there was snow on the ground. I’d be surprised if the nursery had any customers come through its doors in February, so its year-to-date revenue was probably very close to zero. So how did the nursery pay for that inventory? It probably borrowed from a bank using its pre-established line of credit. Believing that the owners of the nursery would profitably sell the inventory and then repay the line of credit, the bankers assumed the risk and advanced the needed funds.
Simple as these examples may seem, a lot of financial analysis was required before these loans were approved. And the credit officers at these banks could not have approved the borrowing requests without the solid work done behind the scenes by the bank’s Credit Analysts. True, a small percentage of companies can operate using their own cash without needing to borrow, but even these businesses still need a bank for depository accounts and cash management services.
The bottom line? Your work as a Credit Analyst matters, because most businesses couldn’t survive without bank financing, and loans couldn’t be approved without good credit analysis. So enjoy that burger, plant those flowers, and take satisfaction knowing that the career you are embarking on is vital to the economy.
