Asking Your Bank What They Are Willing To Take In A Workout Is Folly
I talk to many small business owners who are attempting to do the right thing and work with their bank to resolve defaulted debt, doing their own workout. OK, it is an approach you are entitled to consider. I don’t advise it but it appears to be the honorable thing to do. After all, you entered into a contract and now while in default want to resolve it honorably and to the best of your ability. Great! Unfortunately, the bank tends to come from a different position. To them, “honor” means you pay all and they absorb none of the losses. It is an unreasonable presumption that takes unfair advantage of the borrower.
However, there is one approach you need to get rid of immediately and never do as it is just not the way to deal. The reality is you are under extreme duress, challenged by declining revenues and defaulting debt. You have few options and little capital to deal with, perhaps none. Thus the context needs to be what can you do, what do you propose, not the unholy question of “Banker, what will you take?”
Yes, I hear this approach being tried all the time by borrowers who then call me and say the banker is being unreasonable, that they want everything or are willing to modify but not to forgive any debt, even the late fees or unpaid interest. No kidding, no surprise, I think. That is their context. All for them, nothing for you. Asking them what they will take is like asking the fox who is in the hen house what he would like for dinner.
I understand you signed a deal. I further understand it is honorable to uphold it. I also agree that changing the terms after the deal has been committed to is inappropriate. But, I also say when the circumstances and understandings basic to the deal have changed, such as with the business going bust, then the deal must also change. That is the brutal reality of business.
Tell them what you can do and then call us as they will not accept a reasonable proposition. But don’t bother asking them what they will take – that is pure folly.
