May 2019 – You can learn to be a good borrower

Lending situations are simultaneously transactional and relational in their orientation. Most of us are borrowers right now and many of us are lenders. Whether you realize it or not, you have a relationship with your lender, with all of your lenders. It may be a relationship that is mostly transactional in nature, as is the case with most credit cards, but there is still a relationship there. With commercial lending situations, the pendulum swings much more to the relationship end of the spectrum. And that relationship, like any relationship, is between human beings. As we like to often say – banks/lenders don’t make credit decisions, people make credit decisions. Therefore, having a good relationship with your lender is essential. To reiterate, all borrowers and lenders have a relationship, whether they believe it or not.

To some borrowers, developing a solid relationship with their lender comes naturally, but for most of us and for most market participants, it is something that they have to learn. Can someone learn how to become a good borrower? We believe that answer is yes.

So what does it take to have a good relationship with your lender? We believe that having a good relationship with your lender involves the same characteristics that go into all relationships. Yes, all human relationships. Relationships don’t just happen. They require effort. Good relationships are based on principles, solid communication and a decision to trust. Relationship partners are looking for honesty, consistency and fairness. It takes courage to be fully transparent and honest with anyone. To reveal yourself completely, to share honestly everything that you are and risk being judged or criticized takes a lot of guts. It takes courage to make a decision to trust in a relationship. Many of the same dynamics occur in our lending relationships. The best lending relationships, like the best personal relationships, are based on mutual respect, admiration and trust. They develop over time and require nurturing and hard work.

Nobody enjoys getting bad news, but life happens and a strong relationship can handle bad events and bad news. Delivered honestly and with integrity, a solid relationship can sustain and withstand bad news. Bad news is best delivered promptly and thoroughly and without holding anything back. I’m not talking about “oversharing”, I’m talking about being transparent and not withholding bad news. There is nothing that lenders dislike more than negative surprises and there is nothing that will corrode a lending relationship faster than withholding pertinent information and hiding bad news. Nothing tears away at the trust in a lending relationship than if they find out a key piece of information on their own that the borrower had withheld from them. Lying by omission is a really bad idea for borrowers. Go back and re-read the loan and security agreement and you should be motivated toward transparency with your lender.

What are the benefits of fostering a relationship like this, of working so hard on a relationship? There should be just as much or more positive motivation as there is negative motivation. It’s not just about staying out of the principal’s office. It’s about allowing your business and your company to enjoy the fruits of a strong lending relationship. A strong relationship with your lenders is a critical building block to your capital structure and to your company’s success. Relationships take time and a real investment by everyone involved, but that effort is always rewarded in the long run. People have long memories when it comes to these interactions and you are building a reputation and a body of work for the long-term.

Is there anything more attractive than a happily married, older couple that have committed their lives to each other? A successful relationship produces innumerable benefits for both parties to the relationship and is an essential part of a happy life. It is proven that successful relationships lead to healthier, longer lives. The same is true of a successful relationship between borrower and lender in terms of the benefits to the financial health of the corporation.

Manipulation is just not a good tactic in any relationship and this is axiomatic in lending relationships. We often see potential borrowers wanting to do or say anything to get a loan approved. This is not a good idea and the perils of this strategy should be obvious. No one likes being manipulated and eventually the truth will come out. When seeking to borrow money, the truth is your friend and will lead to the best possible outcome for everyone involved.

Principles, ethics, honesty, consistency and discipline are essential to lenders, and are core to any relationship between borrower and lender. Adopting these characteristics as a strategy are the first step toward maximizing your long-term borrowing potential and creditworthiness.