Mitigating Risks for Lenders

In this session, Heather highlights the fundamental asymmetric risk profile of lending: while business owners have unlimited upside, lenders are capped at their fixed rate of return. This means banks are economically forced to underwrite for a low probability of default, as they don’t share in the “home run” profits that would offset failed loans. Heather emphasizes that 70% of declined deals are due to unmitigated risks, and lenders typically cannot handle more than one significant mitigated risk per deal. Using the “Jenga Tower” analogy, she warns that multiple points of failure even if addressed individually create a deal that is simply too unstable for a bank’s thin-margin model.