Where spreadsheets break in private credit operations

Most credit managers begin by running their operations in spreadsheets, and for good reason. Excel is fast, flexible and already on every desk. The loan tracker, borrowing base and investor report for a first fund can each be built quickly.

The problems emerge later, and gradually. Nothing fails on the day the second facility is added or the fortieth loan closes. Each process simply becomes a little slower and a little more dependent on the person who built the workbook. These are the five processes in which we most often see spreadsheets fail first.

1. The borrowing base

A borrowing base applies a set of rules to a portfolio: eligibility criteria, advance rates and concentration limits. In a workbook, those rules become formulas that reference other formulas. Add a second facility with different rules and there are two workbooks that must be kept consistent by hand. Answering the question a manager most wants answered, which facility should finance a given loan, then requires comparing both workbooks side by side.

2. Agent notices

Notices of rate resets, paydowns and amendments arrive as emails and PDFs. Someone reads each notice and types the details into the loan tracker. The workbook keeps no link to the source notice, so when a figure is questioned later there is nothing to trace it back to.

3. Reconciliation

Reconciling your records to a custodian or trustee in Excel means exporting both sets of data, aligning them and searching for differences. The method works, but it is slow enough that it tends to be done only monthly, and a month is long enough for small differences to become difficult to explain.

4. Trade settlement

A loan trade can take days or weeks to settle and involves approvals, documents and wire instructions. A tab in the tracker can list the open trades, but it cannot request an approval from compliance or show an auditor who granted it.

5. Reporting

When every report is assembled from new data exports, producing each one becomes a small project in its own right. The figures are correct because someone checked them, and the firm comes to depend on that person.

How to tell which processes are affected

Ask three questions about each process. If the person who performs it were away for a month, could someone else perform it from written procedures? Can you show who approved each step, and when, without searching an inbox? If the volume doubled, would the process take twice as long? If the answer to either of the first two questions is no, or the answer to the third is yes, the process has outgrown its workbook.

The solution is rarely to ban Excel. It is to move the system of record, the workflow and the controls into software designed for those purposes, and to keep the spreadsheet for analysis, where it is most useful.