By Lisa Hochgraf
During CUES School of Business Lending III today near Chicago, presenter Jim Devine emphasized that credit union business lenders not only need to understand how to analyze the health of a business, but also they need to be able to effectively communicate about that health with their business members.
“A lot of this is about describing what you see in language that is not too complex,” he told the 30-plus
Jim Devine urges business lenders to talk 'dollars and cents/sense' with borrowers. attendees of the program. “You want to have an enlightened conversation where the business owner understands what you’re saying.”
Devine suggested always “using the language of dollars and cents/sense” when talking about business ratios with business members.
For example, he offered, consider the ratio of assets/liabilities. This ratio helps credit unions get a handle on a business’ ability to pay its bills.
If a business has $200,000 in current assets and $120,000 in current liabilities, that ratio becomes $200,000/$120,000 or $1.67/$1.
Saying, “For every dollar of current liabilities, you have $1.67 in current assets available to pay your liabilities” would be the way to communicate this information to the business owner, Devine said.
A confusing (but sometimes used) way to say it might be: “By the way, you have a current ratio of 1.67.’ The business owner might look back at you and say, ‘That’s great. What does that mean?’”
With good understanding of this ratio, the credit union and the business can compare how $1.67 in assets compares to the $3 in assets other businesses in the same industry might have for paying liabilities—and get a handle on how the business is really doing.
“You have to be able to describe (business) architecture in language that can be understood. “Simplify; don’t complicate,” he advised.
Lisa Hochgraf is a CUES editor.
Learn more about the new CUES Advanced School of Business Lending, coming up in March.
