What Happens When Banks Diddle?

John Ellsworth

New John Ellsworth
John Ellsworth of Success Strategies

I know this is probably going to “ruffle some feathers,” but I believe it is a question that needs to be asked… Now, I know that all banks are being subjected to a massive increase in the number of “eyes” who are reviewing their loans, but give me a break. Just because they are being reviewed more often does not mean that it is a “bad loan…” The last time I checked, I don’t think the auditors are running the banks! They are only evaluating them.

I also want to clarify that I am not talking about loan situations where the Loan Officer is waiting on the arrival of a new financial statement. That makes a lot of sense. In fact, it is clearly logical. I’m talking about scenarios where, in spite of the difficulty of a borrower’s industry, they are still able to attain profitability. Nonetheless, their bank still keeps its finger on the “Hold” button. Why?

Often, it is explained that we need more “clarity…” Really? It looks fairly clear that these are the times when borrowers need the ongoing support of their lenders, not a bureaucrat who cannot make a decision. I spent a number of years on the line, making loan decisions. No one said it was easy, but that is why bankers get paid, isn’t it?

If they are worried, they should exit the credit. Why leave it hanging around, hoping for a financial resurrection? Give the borrower a deadline to improve or move out of the bank, i.e. find another lender. You owe it to your shareholders. If it’s workable, then move forward and give the borrower a greater chance to succeed. Here’s why.

For a borrower who is being delayed, they are caught in a conundrum. First, they don’t know if or when the loan is going to be approved, so they wait, instead of finding another alternative solution to their challenge. This hurts their results. Additionally, they get frustrated and start to lose their focus. Frankly, this can lead to poor management decisions on the part of a borrower.

You know the old saying, “When you are up to your eyeballs in alligators, it’s hard to remember that the original objective was to drain the swamp.” As a result, they start to think short term only, instead of focusing on the benefits of not just surviving, but also thriving and hitting their long term objectives. That, my friends, is no way to run a successful business.

  Overall, nobody wins in these messy scenarios. Borrowers stress needlessly and tend to make poor business decisions or, worse yet, not make any decisions at all, choosing instead to operate by default. Lenders then can get strung out financially, too. Ultimately, getting the right information needed and then moving forward with a proactive plan is what I consider Next Level Thinking! I welcome your thoughts and comments.

John Ellsworth of Success Strategies offers financial consulting to dairy and farming enterprises across the U.S.  He may be contacted by email at [email protected] or by phone 209.988.8960.  More information is available at www.success-strategies.com.