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Coleman C-Suite Small Business Lending Report — The 5 D’s of Lending

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May 13, 2015

By Bob Coleman
Editor, C-Suite Small Business Lending Report

We all know the 5 C’s of lending — character, cash flow, collateral, capacity and conditions.

But how many of you know the 5 D’s of lending?

Credit Annemarie Murphy of United Community Bank for the authorship.

I recently ran across an article I wrote several years ago. Annemarie found a profitable niche marketing SBA loans to dentists. The attraction is dentists have a very small default rate, but some loans default.

She wanted to know why.

She studied the case files and came up with the list the five Ds that can end any medical professional practice are: Death, Disability, Drugs, Depression, and Divorce.

She encourages lenders to get an in-depth understanding of their borrowers’ professional practices and lifestyles.

For example, in a single-doctor practice, if the physician dies, the entire practice may end.

The second D is the potential disability of the owner.

A dentist may break a wrist or a couple of fingers skiing and lose some mobility. This may require a transition from a clinical practice into a teaching practice, resulting in a 20% to 40% revenue reduction.With such a steep decline in income, could the dentist still repay the loan?

The stress level for doctors and dentists tends to be very high. Whether from litigation, government reform, or the pressures of running a practice as a business, stress can contribute to depression.

The fact that doctors can write their own prescriptions to ease their depression can, and has, lead to incidents of drug use and abuse.

A cursory tour of the practice and a conversation over a long lunch can provide insight of the applicant behind the numbers.

So, take a step back and evaluate if your applicant may be susceptible to one of the 5 D’s of lending; Death, Disability, Drugs, Depression, and Divorce.

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