(Fill in the Blank) Need Not Apply
By Kevin F. Clune, CLP
One casualty of the recent recession seems to be Common Sense.
In some respects we see common sense returning to lending by banks and leasing companies. Subprime loans are pretty much a thing of the past. We've seen an increase in minimum credit requirements, more disclosure and better credit underwriting.
Prudent practices that have been abandoned have suddenly resurrected, like asking for credit information. Many of the computer decisioned systems have gone back to involving humans because you just can't program common sense into software, much less software that automatically makes credit decisions.
Yet many business owners and equipment vendors have found an absence of common sense by many leasing companies and banks who have "thrown the baby out with the bathwater" by "redlining" or excluding all applicants who happen to be in certain industries. That list of "prohibited" industries is growing.
Understandably many don't want to loan a lot of money to the hardest hit industries including real estate, mortgage, trucking or construction due to the high financial risk.
Most lenders will also automatically reject applicants in many other industries including churches, chiropractors, not for profit agencies, public school districts, cities, counties, states, trade schools etc. without even looking at the individual credit. The prohibited industry lists are even posted on their websites.
We at Clune realize that some of these industries may be hurting but we recommend that our credit department take a more subjective approach in assessing a risk. As a result, we have found that some of the "automatic" rejections may be worth a second look. Consequently, we are booking lots of business in those categories. A "prohibited industry" list can be counterproductive, leaving your good customers underserved.
We will not accept vendor relationships that only involve these disaffected entities. On the other hand, anyone can approve blue chip credits. One way we distinguish ourselves is by booking deals that others reject IF we are also getting that vendor's other business.
A "need not apply" attitude is not a good business policy.
Kevin F. Clune