A banker’s eye view

Nothing will get you a loan denial faster than telling a banker, “There’s no risk in this loan. You are completely secure!” Even cash-secured loans have gone bad when a bank teller failed to see the “hold” on the deposit account pledged to a loan.

Banks take collateral because their profit margins are relatively thin. A venture capitalist can afford for some deals not to work because she’s making a 50% return on the ones that do. At this point in time, banks make about 5% on deals. One bad one can wipe out a hundred good ones.

If the “You are completely secure!” borrower can’t see that humans have a species-wide propensity for stealing defeat from the jaws of victory, he probably is also missing some other key piece of information, say, a competitor clipping at his heels.

Take this to the bank: If a bank has to foreclose on collateral to repay a debt, the bank doesn’t make money. It may break even technically, but when you consider time and attorney fees spent and opportunities missed, it loses money. The only way a bank makes money is when a borrower pays… “as agreed.”

Banks are not alone in this. If a business does work for a fair profit but then has to spend time and money to get the customer to pay up, the business ultimately loses. Its profits evaporate. Enough wild goose chases and the business becomes an unsustainable proposition, an un-going concern.

Our capitalistic system, from banking to beyond, is premised on promises kept. People doing work they agree to do. People making payments they agree to pay. Any interruption in delivery, any commitments broken, weaken the parties involved. Enough broken promises and you have a business, and ultimately a society, in decline.

The core of banking is the “promise to pay.” When an individual deposits money into a bank, the bank promises to pay it back according to the terms of the account. When an individual borrows money from a bank, she signs a promissory note promising to pay it back.

The best repayers of debt are those who keep the promises they make. Some bankers secretly have a greater comfort level lending to someone who’s been married thirty-seven years versus someone who’s been married thirty-seven times.

They prefer those borrowers who have had a few, long-term business partners rather than those who have had dozens of short-term partnerships.

For better or worse, it usually takes many years to repay debt. Bankers want borrowers who are in it for the long haul. Inevitably, things won’t go exactly as planned for a business or a family. But a promise-keeper will adjust with the changes and find a way to keep his word.

The more promises that are kept, the more a person, a family or a business thrives. The more promises broken, the more they decline.

Kept promises are like bricks laid in order. They mount into a strong tower. Broken promises fall out like rubble, providing no shelter from the storms of life.

The kept promise is central to success – in banking, in business and in life.

 

Kevin Thompson writes weekly for The Boerne Star in the Texas hill country. Follow him at http://www.kwt.info.

 


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