By Charles H. Green
Have you ever made a loan to some big muckity-muck in your market? An athlete, famous performer or local politician? Are you presently the lender of someone known by folks far and wide and possess knowledge of their financial details more than anyone else?
It happens frequently that these celebrity types want to cash in on their name by borrowing money from a bank, particularly in larger markets where there are simply more celebrities. And for some of them, “no” has never been part of their vocabulary. And for some lenders, getting star-struck sometimes leads to ridiculous transactions.
The news has been full of a Minnesota State Senator this week accused of defaulting on a U.S. Bank SBA-guaranteed loan for $748,000. Beyond the headline, lenders will recognize details like the ‘9-year loan term,’ probably meaning the loan was used for a business acquisition and working capital.
Not assuming everything in print is accurate or that U.S. Bank didn’t do good work, but the article states 1) the original $613,000 loan was secured with a residence valued at $128,000; 2) the loan defaulted within 18 months; and 3) the borrowers were subsequently sued for non-payment by the sellers of the business they bought.
Is SBA is honoring this guaranty?
We don’t know what we don’t know, but my personal experience knows all that glitters is not gold. Letting fame, position or reputation substitute for old-fashioned underwriting and respect for the loan policy is a mistake.
In 1983, I worked on an application for an athlete who’d just arrived on the Atlanta Hawks roster after a short tenure as #1 draft choice of another team. He was already a local star having played for the University of Georgia, so returning to Atlanta was a big deal.
Given the opportunity to provide a line of credit to him, I virtually ran to the credit bureau terminal. But it was there I heard another sound, at least the imaginary sound of what two dozen other banker would sound like running. That is, running to get this guy in my office. You see, that’s how many defaulted loans were already on his credit report.
He went on to be quite famous on the court and is still associated with team. But if you read about “Nique” in Wikipedia, his “NBA Career” section starts with the words “Cash flow problems.”