Understanding Credit Committees: What do home buyers and credit committees have in common?
If you’ve seen my origin story about what led me to take my finance business online and international, you will remember that central to the whole story is the idea that business decisions are made with emotion and not facts and figures. It may sound counter—intuitive, but let me tell you a story.
Right after the 2008 global financial crisis, I was sitting on some luxury property. I did what good bankers do; I financed it with a very conservative 70% loan to value, which in those days was considered fool-proof. I built the house and had a Plan A, Plan B and Plan C if I went over-budget. But then the market crashed and because I was so keen on selling the property, I was all over the real estate agent as she was doing her thing on Sundays; I was just hoping for a sale.
I remember one buyer in particular who came to me (I was in the house at the time) and complained about the size of the walk-in closet and a few other things. The real estate agent, who had good instincts told me to ignore the feedback and move on. She just knew this wasn’t a buyer. I wish I had learnt the lesson fully back then; that was more than 10 years ago. You see, that particular buyer was not saying to me “If you fix the following items, I’ll buy the house you so desperately need to sell.” They were saying “I’ve decided not to buy your house because I don’t feel I can live my dreams out here, and now I’m going to think of some reasons that make sense to me and feel respectful to you.” The emotional decision comes first, and the reasons come afterwards.
And it’s exactly the same with a credit committee. When you get a “no” from a credit committee, there will usually be reasons attached to it. Give it your best shot to address those reasons, but really just spend 15 minutes writing an email because what they’re really saying is “Your deal makes us afraid we’ll lose our investors’ money, and we need to give you some reasons that sound sensible to us and to you.” Usually what happens is that after you try and satisfy the objections, they just come up with more objections. So watch the language of the feedback very carefully; it’s usually easy to spot a “no” compared to a “yes we like your deal but just make us feel safer about one or two concerns” – that’s where you want to get to in your first one or two interactions with any lender anywhere. Frankly, just ask them flat out: “Does my loan make you uncomfortable, or do you like it but just want me to make you feel a little safe about one or two concerns?” That’s universal – I’ve done finance deals all over the world and it’s ALWAYS the same.