The Garrington Lending Perspective: Volume 12 – Bringing the Right Conversations to the Table

Picture an advisor picking up the phone between meetings. They have a client with a financing need, a general sense of the numbers and a few questions about what might be possible. The full picture isn’t there yet, but there’s enough to start a conversation. For us, that is often where the most important work begins. Tammy Kemp, our President and Chief Credit Officer, wouldn’t change a thing about that first call. “It doesn’t have to be fully baked. It doesn’t have to be perfect,” she said.

That rough picture is where understanding begins, and Erica Axani, our Executive Vice President & Chief Risk Officer, listens first for a handful of things: what the business does, what assets it has, why it needs funds and how much. The numbers matter, and they come in time, but the conversation “is going to fill in a lot of the blanks for you that numbers just can’t.” It is the first step in seeing how Garrington might help.

November is Financial Literacy Month in Canada, and this year’s theme is “Talk Money”: purposeful conversations that help people make informed financial decisions. While the campaign focuses largely on personal finance, the value of an informed conversation extends to commercial lending, too. An early discussion helps us understand the business while giving advisors and clients a clearer picture of what a lender needs to know to assess an opportunity. For the professionals who read these pieces, this is a closer look at how an asset-based lender builds that understanding and turns it into a credit decision.

How much one conversation tells us

Every description of a business carries more information than it seems to. Who the customers are tells us a lot about how reliably, and how quickly, the receivables are likely to be paid. What the business makes or sells says how its inventory behaves and what could happen to its value over time. Why it needs funds now speaks to timing, and often to the structure that might fit. An experienced lender can begin identifying the right questions and a potential financing structure from the first few sentences, long before the financial statements arrive.

To show how quickly that picture forms, Erica often uses a simple example. Imagine a food processor that sells to national restaurant chains and wants to borrow against its receivables and inventory because its current lender is stepping back from the sector. From that one description, before anyone has sent a spreadsheet, she knows the receivables are owed by chain restaurants and that she is looking at an asset-based structure. She also knows her next questions will be about spoilage and expiry dates, and whether the inventory is frozen, chilled, kept at room temperature or sitting on a shelf as rice and dried beans. The first conversation doesn’t answer everything, but it gives a lender a strong starting point.

Why paperwork is only part of the story

Tammy has a way of putting financial statements in their place. “Financial statements tell you a story at a moment in time. They’re not telling you the whole story,” she said. They are an important part of the assessment, and they help guide the next questions, but understanding the business behind the numbers is just as important.

It is also why a file here never disappears into a system to wait for a stamp. “You’re not going to give us some 30-page report that goes up into this tower and then comes down with a thumbs up or a thumbs down,” Tammy said.

People borrow from people, as she likes to put it, and people lend to people.

Asking good questions

Erica still remembers a colleague from early in her career who would get excited every time a new file arrived. She would label the folder, smooth the cover and call it her favourite part: like opening a book, with a whole new story to learn. Erica feels the same way about a first call with a potential borrower. She usually starts in the same place. Tell me where you’ve been, where you are and where you’re going.

She coaches her team to approach every file like that, to learn everything they can about a business and not to dismiss anything at face value. As she sees it, the learning runs in both directions. While we are getting to know the business, the owner is getting to know us, and both sides come away understanding a little more than they did before the call.

Understanding what the business needs

Sometimes that understanding reveals a gap. A client may need $10 million to carry out its plan while its assets support $5 million. Erica is clear about what happens next. “We don’t say, here’s 5 million, good luck,” she said. “We don’t sell cash and clip coupons.” Half of what a business needs can leave it stuck partway through the very plan it was trying to fund, so the conversation turns to how the rest could be covered, often with equity or subordinated debt sitting behind us. “We want to be good partners. We want to be good lenders. We want to provide value.”

This is often where a referral partner makes the biggest difference. You may already know the investors, the subordinated lenders or the family capital that could close the gap.

From understanding to a decision

By the time a file reaches a credit decision, our team has spent real time with the owners, and wherever possible that means meeting them in person. Tammy feels strongly about it. “You cannot get to know somebody over a video screen if you haven’t met them in person,” she said. Field examiners and appraisers then help confirm what the conversations have already shown, and our credit decision is made by people who have come to know the business, its owners and the referral partner who introduced them.

Bring us the rough picture

For referral partners, the practical lesson is to call early. Share the story behind the numbers, and don’t wait until the file feels finished. “What do you think of this one?” is a fine way to open. When we asked Tammy what she hoped referral partners would take from this month, her answer was that we’re open to the conversation, in whatever state the file is in. Tammy is happy to get on the phone with you, your client or both, and she always respects that the client relationship is yours.

You don’t need to have every answer before picking up the phone. Start the conversation early, bring us what you know, and we can work through the questions together.