I hear it all too often. Small business owners are in default, making voluntary partial payments thinking that this somehow helps them stay in honor and that it will satisfy the bank and that it is “the right thing” to do. They are paying what they can even if it is less than what is owed, wanting to “do their best” by demonstrating that they are trying and believing that this will somehow serve their best interests with the bank and support a more gentle approach to their default and ensuing workout. At least,that’s what they hope. They believe that if they are at least making an attempt to perform as promised then partial payment satisfies their word and commitment, if not to the penny at least to the point of honor.

Not so. If this sounds familiar, then you need a dose of reality. You are wasting cash and gaining little advantage.

First, a basic concept: Default is default. Partial payments without a written agreement authorizing such are a waste of cash. They do nothing to improve your predicament nor the outcome. “Default” is a term controlled by your loan agreement; either you pay in full as agreed or you are in default. Partial payments outside of a written modification do nothing to alleviate or change this  situation other than to needlessly waste precious money better used for other purposes.

The underlying issue, however, is the need borrowers feel to act honorably and do what they believe is the “right” thing to do.

Stop this silliness. A business contract is not affected by acting honorably while you’re defaulting on the terms agreed upon. Despite your hope that it does count, it does not. As stated, default is default. There is no such thing as honorable default, it is simply default. A defaulting borrower will suffer the same consequences as a partial payment-making, honorable, defaulting borrower, so what is the point of making partial payments? There’s no point, whatsoever. It is not more honorable to make partial payments than to not pay at all. Remember, default is default. (If it makes you feel better, donate the money to charity; it will have the same effect on your loan workout as partial payments.)

The only way honor enters the equation is when you communicate appropriately, explaining to the bank you cannot make full payment. Cooperating with their requirements and not avoiding the issue—in other words, entering into a workout scenario—as soon as you are aware that you cannot comply with your agreement, that is the honorable thing to do. Partial payments are meaningless and represent avoidance of the real issue: acceptance of the responsibility to either pay or suffer the consequences, honorably.

Your remaining cash should be used for personal preservation and other appropriate necessary expenditures, not thrown at the feet of the bank with a request for leniency because you are “doing your best.” It’s not enough and requesting leniency will not have the desired result.

It is irresponsible to throw money away in a time of great need. To act honorably is to confront the issue as soon—and as honestly—as you can. This, you should do. Cease making partial payments immediately. Do the workout; that is what is most honorable.