Beware Of Bankers Making Demands For Additional Collateral
It happens all the time, especially now as the economy continues to force declining revenues on most small businesses. This results in either outright default or late payments or just erosion of the business, even if payments are currently being made. The bank, sensing decay and becoming concerned with their exposure to loss, will call you into their offices to discuss the situation. They want to know what you are going to do to upgrade your business. Their real mission is to intimidate you into doing something that is not at all in your best interest but is very much in the best interest of the bank.
You must understand that when the banker fears he is exposed to loss, it is no longer a trusting relationship where the banker is giving you good advice that you can rely on. He is not your counselor, advisor, representative or consultant. He is the banker and his sole intent is to protect the bank’s interest against loss from your loan. He may demand additional collateral in the form of a CD to be held by the bank, additional real estate, or additional guarantees from your spouse, parent or anyone they can get. They will tell you that this is to prevent them from foreclosing, however, the real reason is to give them more collateral when they do foreclose because that is what they are setting you up for.
The simple answer is NO.
You gave them adequate collateral when the loan was made. If they want additional collateral they will have to give you additional money, otherwise, what is the sense of giving them more collateral now? What benefit will you receive in return? NONE. The mere verbal promise to not foreclose is an empty promise and should not persuade you to give them more collateral or guarantees.
Resist the temptation to cooperate. It is not in your best interest and will come back to harm you. Just don’t do it, no matter what they say to you. There is no benefit to you giving them any additional protection. Call their bluff. There are far better ways to deal with this situation, no matter what they say they will do.
