Comprehensive search can be a vital component of your due diligence efforts. Learn why it may be prudent to search multiple databases.
As a banker, financier or mortgage lender, you already know information is a vital part of your stock and trade. Are you using all of the tools available to you? Have you considered using multiple concise points of data to help you make a more informed decision? Comprehensive search may be a tool you want to add to your tool kit. Megabytes of raw information and unfiltered data don’t always lead to good decisions or sound risk mitigation. Knowledge – the taking of appropriate and concise information then applying it in focused and productive ways – is often what separates a good business decision from a bad one.
One bad loan or lease can damage or even sink a company. It’s wise to do as much due diligence as possible to determine the creditworthiness of the borrower and risk to your firm.
There are many different types of searches as part of any due diligence procedure. These include UCC searches, bankruptcy searches, corporate business entity searches, and tax lien searches. Each search can be on a national, state and/or a local level. Using a comprehensive search technique is a way for you to get a better picture. Clearly that’s a lot of ground to cover.
Plenty of databases can give your due diligence efforts a peek at a would-be debtor’s history and present state. However, it may take time and resources to go through each one to gather the proper information. To be secure you may need to search several of these databases. A comprehensive search strategy may be a way for you to help mitigate risk.
Furthermore, some of these databases may only give a partial picture of a borrower’s financial situation. For example, one database may reveal a potential borrower has no current liens. That may not be the entire story. The reason the borrower has no liens could be because he or she has filed for bankruptcy and therefore hasn’t been able to get credit. A simple lien search alone would not tell you that.
That’s not all. Bankruptcy is handled in local courts. That means if your potential borrower has moved several times, you may only be able to determine their last location or two, not each and every move. If you can’t determine this through the database you’re using, you may make a bad loan decision due to a lack of overall knowledge. You could be putting your firm at risk.
Effective due diligence means evaluating your potential risk, and digging through the appropriate data to make your best decisions possible. One source of data may give you an incomplete picture. Using multi-part search as part of your toolkit can help you reduce your risk.