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We need credit reform, stat!

October 28, 2010

In my business I read a lot: magazines, blogs, news feeds (or tax feeds in my profession), books, tax manuals etc. I like to read, and  not only does it satisfy my education requirements and  increase my abilities (aka “makes me smarter”) but it allows me to say I have a hobby. (I always feel odd when I’m asked what are my hobbies and I can’t list  something like” fly fishing,” or” bridge club”…I say “reading”) (LOL)  Anyway today I’m reading Entrepreneur’s November magazine and came across an article titled “The Numbers That Matter” and initially liked it, but then turned red.

The article states that bankers do not actually read financial statements when one is applying for a loan. The bankers do a quick eyeball test to answer three questions for the bank: Can you pay? Will you pay? and What if you don’t pay? Prior to the talk with the banker the bank’s credit department crunches the numbers and gives ratios to what you have on your application and the accompanying financial statement. The article goes on to say that it is important to understand ratios that can or can not work in your favor. blah blah blah….

Why does this bother me so ? Simply because the credit report (on you or the business, but eventually you) is their main focus and the various types of collateral that you have, and those, they assign percentages  (in this case the percentages range from 10-80%). Seriously ? This is as vague as figuring out how many more calories “sprinkles” add to your banana split.Banana split with out sprinkles In this economy where the taxpayer has such a hard time making ends meet and quite often falls behind in their fiscal responsibilities resulting in  their credit report score dropping or their acquired inventory is sold to make ends meet; they then can just save themselves time and not apply for that loan. You don’t need to understand the ratios to figure out why you are being denied the loan. This isn’t the bankers fault, this is the fault of a system that doesn’t look at the individual more than what an application says or a credit score reveals. Our system is broke. We need legislation that forces the bankers to look beyond the credit report or this vicious cycle in our economy will continue.

The article finishes by saying the lender looks at ratios like the jacket copy of the book…if they don’t read well they won’t look further. At GAI ( we look past the numbers as that is how we are able to know your story. Give us a call today at 212-979-6830 or stop by for a free consultation and we can see how we can help your financial life. See you soon!


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