We often apply for commercial loans for clients. Sometimes these loans have a little added complexity. For example, in the past few weeks we have processed a loan application from two couples buying a business via a family trust. They will use their homes as security.
The sheer volume of paperwork (so far) for this file is not unusual. Everything from the sale contract, the trust deeds, personal information, the business financials, etc runs into 58 computer files at around 30MB containing just over 1200 pages of data.
Which begs the obvious question. Do the banks actually read all that data?
Well, no they don’t. So why ask for it?
It’s something called process. Banks – like all large corporations – have had an army of consultants advising them on how best to re-engineer their processes to minimise risk and to accelerate the decision making process. Given all banks generally poach staff from one another and hire the same consultants, it’s easy to see why all the processes and their obligatory required paperwork is almost identical.
Has it worked?
Yes and no.
With the sheer mountain of paperwork required the poor old customer has to race around between lawyers, accountants, vendor’s lawyers and accountants to get the appropriate documentation. The funding bank then gets to tick off their checklist of required information.
Then when they have all this information, they sit down and start processing the data. This usually leads to more questions and requests for more detailed information. This is the stage when the client is now tearing their hair out.
When all the information is compiled and an application is written up by the banker, it is then presented to a credit analysis team (this is the process favoured by the four major banks). Then a formal credit application is compiled by the analysts team and submitted to the risk decision maker (this process can usually take two to four weeks). Here’s when the real conversation starts.
We are then asked to provide yet more information – though often this is the same information already provided but in a format that the risk decision maker is used to. By now the client has slumped into a depressed zombie like trance and can see thousands of dollars of professional fees just being wasted.
It is usually around this time that the decision maker decides to do one of the below:
- “Work” from home – which usually means they’re not contactable
- take annual leave• take a sick day
- pass on the transaction to a colleague because he/she has too many transactions to process, and
- only if you’re lucky, ask more questions – which believe it or not – is usually a positive sign.
If the client’s mental health survives this process, they’re ready to take on any business.
The person who develops an app that can compile all the above data, extract the required information and present it in a format acceptable to a bank will be very wealthy indeed. For that to happen all transactions would first need to be digitised – ie, no cash.
In the meantime, we’ll translate for you.