Key-person risk
What is key-person risk, and how does a bank assess it?
ONE OF 180 TERMS · FREE · NO SIGNUP
BY MICHAEL SHANG · SIXTEEN YEARS IN COMMERCIAL BANKING · UPDATED
// THE SHORT ANSWER
Key-person risk is the exposure of a business — and of its lender — to the loss of one individual whose relationships, skills or decisions the business depends on: the founder who holds the customers, the one engineer who knows the plant. A bank reads it as part of management quality and asks what would happen in the week that person stopped: who signs, who sells, who the customers call. The answers that count are structural rather than verbal — a named successor, a second line of management, key-person insurance — and their absence in a small business is common enough to be structured for rather than declined.
BASIS Practitioner judgment from sixteen years in commercial banking, set out in How Bankers Think (Highbank Press, 2026). Every borrower on this site is a composite constructed for teaching, not a client. The market is mid-market commercial lending as practised in New Zealand and Australia; where a convention differs elsewhere, the page says so.
// WORKED IN
// NEXT TO IT
// SUBSCRIBE
The Lab.
One case file and one question, in your inbox every Tuesday morning, New Zealand time. The senior banker's read opens only after you answer.
FREE WITH IT · THREE PDFS
An interview case, an annotated credit paper, and a one-page loan application sheet.
No spam. Unsubscribe anytime. Educational content only.