Field Notes Blog > 2014 > Why Loan Officers Ask So Much Information
Why Loan Officers Ask So Much Information
December 10, 2018
“Well that should be enough information to get the loan,” or “I don’t understand why you need ALL this information?” are both comments commonly heard by loan officers when asking customers to complete financial statements. In response to those comments, let’s take a moment to explore the fundamental question of why loan officers ask for a total picture of all assets, debts and income; not just the bare minimum required to secure a loan.
The answer is simple; the more we understand your financial position and the stronger that position is, the better terms we may be able to offer you. By giving you the best possible terms not only are you happy, but we are also happy because we have helped you reach your financial goals. When you reach your goals you make us a stronger institution that is better positioned to serve your needs in the future.
Let’s now further explore the two important meanings of the term “better” in “better terms a loan officer may be able to offer you.” Better first means lower interest rates and fewer conditions on the loan. Like all lending institutions, AgChoice Farm Credit uses a risk-based pricing model in extending loans. Because of risk-based pricing it is always advantageous to put your best and most complete financial foot forward. The logic in this model denotes that the greater the risk in an account, the higher the interest rate and more stringent the conditions placed on the loan need to be to offset that associated risk. On the flip-side, the lower the risk in extending a loan, the lower the interest rate and more lenient the loan conditions and covenants need to be. By listing all your assets on the balance sheet and not just some of them, the stronger your financial position appears. A strong financial position of a borrower poses less risk to a lender; therefore, the better loan terms you will likely qualify for.
The second definition of the word better means better suited for your specific situation. At AgChoice Farm Credit we practice the tagline Knowing You Makes the Difference. Not only is this a slogan, it is also a cornerstone of good business. By knowing everything we can about your specific operation and financial position, we can then structure your loan request to specifically fit your individual operational needs. It is important to have a good fitting loan structure to ensure adequate cash flow and enable proper capital replacement. In turn, the best suited terms will enhance your ability to meet your personal and business financial goals. So remember, better financial records equal better loan terms.