Lessons on Commercial Lending From “A Christmas Story”
If you turn on the TV in December, chances are you can catch a movie marathon of “A Christmas Story” airing at any time of the day. Set in the 1940’s in Indiana, this classic holiday movie follows Ralphie (who is also narrating the story now that he’s an adult), a young boy filled with lots of angst as he navigates the relationships with his parents, his teacher, and the jolly man with the beard on how to get the gift he wants for Christmas – an Official Red Ryder Carbine Action 200-shot Range Model Air Rifle – but keeps getting the same reason for not getting a BB gun for Christmas: “You’ll shoot your eye out!”
Spoiler Alert: After it looks like all of the presents had been opened, Ralphie’s sitting on the couch with his parents and his father asks him if he got everything he wanted. Ralphie replies “Almost.” His father notices a gift that’s behind the desk and tells him to check it out. He opens it up and it’s exactly what he wanted – the Red Ryder BB gun – and he runs outside to play with it.
While it isn’t the same as hoping for an ideal gift, there are still several things we can learn from Ralphie and his friends and family about commercial lending in “A Christmas Story.”
I Triple-Dog-Dare You
In the days leading up to Christmas break while they were outside at recess, Ralphie’s friends Flick and Schwartz are arguing if their tongue would freeze to the flagpole when Schwartz double-dog-dares Flick to stick his tongue to the pole. The narrator comments “Now it was serious. A double-dog-dare. What else was there but a "triple dare you"?” when “Schwartz created a slight breach of etiquette by skipping the triple dare and going right for the throat” by skipping the triple dare and triple-dog-dares Flick. His tongue instantly freezes to the flagpole when the bell rings to call the kids in from recess.
Like Schwartz and Flick, it’s important to test new ideas and industry best practices when it comes to your commercial lending workflow. Baker Hill’s advisory services team works with financial institutions from across the country, making them a great resource to make sure you don’t get “stuck” with outdated credit policies and processes.
Be Sure to Drink Your Ovaltine
After school one day, Ralphie runs home and checks the mail. Drinking gallons Ovaltine for weeks to get labels to mail out “was about to pay off” as he pulls out an envelope addressed to Master Ralph Parker with a letter inside that appointed Ralphie as a member of the Little Orphan Annie Secret Circle with all of the honors and benefits “Signed Little Orphan Annie. Countersigned Pierre Andre. In ink!” He anxiously listens to that afternoon’s episode to get the secret code at the end when “[He] was in my first secret meeting” and instructed to “Set your pins to B-2.” After writing down the string of numbers, Ralphie runs to “the only room in the house where a boy of 9 could sit in privacy and decode” – the bath room. As he decodes Annie’s secret message, the tension builds as “the fate of the planet may hang in the balance.” It turns out that the secret message was “a crummy commercial” that was simply decoded to “Be sure to drink your Ovaltine.”
Spreading statements is often like decoding a secret message. You’re able to better understand the story of a business through analyzing its financial statements and tax return documents – ultimately helping you make informed decisions. While many institutions use complex spreadsheets with multiple formulas to spread statements for commercial loans, a statement spreading tool that offers robust reporting capabilities as well as flexibility to spread multiple templates and easily calculate global cash flow is like a secret decoder pin that gives you actionable insights in the underwriting and loan decisioning process.
I Can’t Put My Arms Down
As Ralphie’s mother is struggling to get his younger brother, Randy, bundled up for school, the narrator explains that “Preparing to go to school was like getting ready for extended deep sea diving… My kid brother looked like a tick about to pop.” When she finally gets the final layers on and Randy’s scarf covering his face, he is crying (muffled by the scarf) so she removes the scarf to ask why. Randy yells “I can’t put my arms down!” She tries to force his arms down but the heavy layers of sweaters and coats cause his arms to keep popping back up so she tells him “Put your arms down when you get to school.”
While this certainly would keep Randy warm, many banks “can’t put their arms down” due to the layers of technology they’ve stacked around their commercial loan origination processes. Instead of taking a step back to review their processes, they’ve started using new software to address problems. While technology is a good thing, it’s important to take a step back and look at your processes first, though. Technology can make a financial institution much more efficient, but it can’t solve problems that are caused by deficient processes. When looking at new technology, saying “We’ve always done it this way” should lead to your mouth being washed out with a bar of soap.
Speaking of washing your mouth out with soap, “Over the years [Ralphie] got to be quite a connoisseur of soap. [His] personal preference is for Lux, but [he] found Palmolive had a nice, piquant after-dinner flavor; heady, but with just a touch of mellow smoothness.” When Ralphie’s family was on the way home from getting a Christmas tree, they get a flat tire. Ralphie’s mom tells him to go help his father. He’s holding the hubcap full of the lug nuts when his old man hits the hubcap and the nuts are briefly “silhouetted against the lights of the traffic. And then they were gone!” Ralphie knew he was in trouble and exclaims “Oh Fffffuuuudddgge!” only he didn’t say fudge, causing his mother to wash his mouth out with soap as soon as they got home.
Lending should be easy – at least with the right technology partner. Many institutions have disjointed, unorganized, or overly complicated commercial loan origination systems that just set them up to say “Oh fudge!” as well. While it doesn’t mean you’ll get your mouth washed out with soap, it does mean that you could be setting yourself up for bigger headaches down the road and a higher cost of ownership of your commercial loan origination system.
Don’t Let Your Processes Be “Fra-Gee-Lay”
One night as the family is at dinner, there’s a knock at the door – it’s a delivery of “a major award” Ralphie’s old man won in a large wooden crate with “FRAGILE” painted across the front. Ralphie’s old man excitedly exclaims “Fra-gee-lay. It must be Italian!” Ralphie’s mom corrects him saying “I think that says fragile.” Inside the crate was a life-size lamp of a woman’s leg in a fishnet stocking and black stiletto high heel complete with a fringed lampshade. While his mom clearly dislikes the lamp, Ralphie’s old man makes sure it’s prominently displayed in the front window of the house. Later in the movie while Ralphie’s old man is in the basement working on the furnace, “what happened next was a family controversy for years” when his mother slyly walks into the living room and from off screen there is the sound of something breaking. Ralphie’s old man runs up from the basement to find his mom holding the broken leg lamp saying “I don’t know what happened. I was watering my plant and I broke your lamp.” After unsuccessfully trying to glue the lamp back together, “with as much dignity as he could muster, the old man gathered up the sad remains of his sad major award” and buried it the back yard next to the garage.
Often times, financial institutions have credit policies, underwriting tools, and commercial loan origination processes that are much like a leg lamp – viewed by some as prized resources and retained for the wrong reasons. For many, it’s a formula that has been working and “if it’s not broken, then why fix it?” Institutions that aren’t regularly reviewing and adapting their underwriting and lending workflow run the risk of making their process more important than understanding the needs of their customers and effectively growing the balance sheet. While this doesn’t mean removing what is working, it’s important to review your loan origination workflow with a critical eye to make sure you’re not holding on to outdated policies or processes.
When “A Christmas Story” inevitably pops up on your TV throughout the holiday season – remember that even though it’s a story of a boy who desperately wants a BB gun for Christmas, there are several valuable lessons that we can all learn from Ralphie about commercial lending.
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Posted on Monday, December 13, 2021 at 4:45 PM
by Mitch Woods