By Charles H. Green
Successful commercial lending depends on a healthy relationship between lender and client. That’s not to say you’re getting into a new “BFFL” every week, but rather there’s a mutual respect and informal set of boundaries that form a working arrangement that you will maintain while evaluating a funding opportunity. Often these relationships kick off with an upbeat meeting that is pure business bliss: they are highly qualified, successful and ready to sign the line you place before them.
But a month later, they’re a little slow returning your call; the comprehensive list of data you scurried to deliver only came back with about half of what you need. And then the company’s name is mentioned at an industry meeting, and one of your competitors suddenly sounds very familiar with someone you thought you had a lock on.
How do you react? Are you disappointed? Mad? Indifferent?
The latter is not a good sign, since you probably have a budget to meet, and time is money. The effort you put into this client may have already exceeded the time you normally go through to closing. Mad? That’s not a good frame of mind to make decisions from; besides, if you can get totally honest with yourself, you would be mad at yourself much of the time anyway.
Disappointment may be easier to address. The truth may be that you need to think about ‘relationships’ in a different light, and study how well you perform your part of the deal.
In business, recognize that you enter most relationships with a glaring conflict. Borrowers want your money at the lowest price, for the longest terms, and without any restrictive covenants that limit what they can do.
Lenders want the money back as fast as possible for a top-tier rate of return, with as many junk fees as they can add on, and with enough collateral to liquidate the loan 2-3 times.
But ‘conflict’ itself is not a problem. Conflict is actually a normal and productive part of a relationship where two parties with different needs and interests work together. In fact, the amount of conflict between two parties has no bearing on the success of the relationship, but rather it’s how conflict is handled that determines a relationship’s success.
The following four characteristics illustrate some relationship flaws that occur as some lenders try to manage the inherent lender/borrower conflict:
Criticism – Sometimes borrowers hand you garbage in response to your request for information. In responding to that reality, especially during a time where you are under other pressures, it can go from offering constructive feedback–or otherwise seeking to improve the status of the situation–to criticism. Criticism focuses on the individual’s character or abilities, rather than the specific action you’d like to see changed.
For example, compare “You run a business and don’t know what a balance sheet is???” vs. “This format doesn’t meet our requirements; is there someone who can prepare the financial according to generally-accepted accounting principals?”
It’s one thing to criticize the person without being constructive; it’s another to go after what you want to be changed, and save the ‘foot-stomping’ for another day.
Contempt - Contempt is the open disrespect toward another and often involves comments that aim to take the other person down a notch, or includes direct insults. It can also be seen in veiled forms, such as rolling of the eyes and couching insults within “humor.”
Commercial lenders that don’t respect their clients need to pass them on to someone else.
Defensiveness – We all react to someone else’s accusations or blame with a degree of defensiveness, and I can’t count the number of loan applicants who took 90 days to provide their requested documentation, and expected a loan decision in 24 hours!
But denying responsibility, making excuses, meeting one complaint with another, and other forms of defensiveness are problematic, because they prevent a conflict from reaching any sort of resolution. Defensiveness only serves to accelerate the anxiety and tension experienced by both parties, and this makes it difficult to focus on the larger issues at hand that need to be resolved.
Be watchful about your own defensiveness, while trying to diffuse the applicant’s, instead of letting it escalate a disappointment into a disaster.
Stonewalling – Sometimes the easiest way to deal with a loan applicant’s questions that you’re not ready to answer is to simply ignore them. Sometimes your borrower does it too, but you both know that’s bad manners and bad business.
The key to overcoming stonewalling is to participate in the discussion. If you’re stonewalling because the circumstances make you anxious about confronting applicant, or you are overwhelmed elsewhere, let the other person know how you’re feeling and ask for some time to think before continuing the discussion.
If you stonewall as a matter of practice, you need to realize that participating in discussions and working together to resolve conflict are the only ways to keep your relationships from crumbling.
What do you think? Comment on this page or write me at Director@SBFI.org.