Banking on your character
So you want to borrow from the bank. You have thought hard about it and figured that debt capital is the only missing link for you to be the next version of the Filipino taipan, given your fantastic business idea that could change the way people live.
Or maybe, you have enough earnings to buy your dream house or a better car and pay for it comfortably from the savings from rent and taxi fare, and from current savings from your regular source of income.
Rather than wait to save all the money you need, you want your family to enjoy better amenities that you know you could afford. After all, that is why you are working. Fair enough.
The next step is to get the banks to grant you a loan. Many people find that dealing with bankers is like dealing with bureaucrats; it is not exactly their idea of a good day. But you have psychologically prepared yourself for that, too.
Just like you and everybody else
Bankers don’t bite. They are just like you and your friends. Some though just want to speak in English and wear nice clothes that at times make them look unapproachable. But really, they are just like everybody else.
Their experience, their training, and the environment they operate in shape their values and behaviors. Just like other human beings, their personal behavior is influenced by their unique circumstance.
However, just like many of us, their professional or business behaviors is mostly predictable. The latter is what you are interested in to get that loan.
To get that loan, it will help to understand bankers’ motivation, their fears and aspirations as business people.
If you are or your parents or some close relatives are Mr./Ms. Big Shots, well-established, and with solid track record, bankers will probably run after you. But if you are the struggling entrepreneur or just moving up in your career, somehow it feels that they are not interested.
Bankers are first and foremost business people. Since they are professional employees, their advancement is determined by how they perform in their business. If they are in lending, they surely want to lend, as that is the only way to move up the career mountain.
The bigger loans and more borrowers they handle, the more important they think of themselves and the more they feel that higher pay, perks, and bonuses are their birthright.
Except, that they want to get paid too, just like you when you want to collect payment when you sell your goods and services.
They like sticking to the big shots and those more likely to pay their debts just as you would want customers and clients who are sure to pay what they bought from you. They are making sure that they will do good business. After all, their failure to collect from those they lent money to is a sure route away from higher pay, perks, and bonuses.
Character – your willingness to pay
The key is to convince your banker that you are good business. Ponder the things bankers consider in granting credit.
We can group these into two major considerations—your willingness and your capacity to pay. Today, we discuss willingness. In future issues, we will tackle capacity.
Bankers refer to a borrower’s willingness to pay as character. This is probably the more important consideration when getting a loan. We all have experiences involving people who have the means to pay but would not do so.
In the last great credit crisis in the late 1990s, we have seen really big shots finding ways to escape paying their debts even if they could afford to pay. Once bitten, twice shy, as they say and so bankers are just being vigilant.
Since they don’t know you, they will look for indications of whether or not you are the type to honor your commitments. If you have a track record of bad credit, like an unpaid credit card, or past due personal loan, or any indebtedness you failed to honor, you are a candidate to be sent to the virtual credit exile colony.
Even if you just happened to be a really nice friend and signed as a co-maker to a friend’s loan, you will likely be judged badly if your friend failed to honor the debt and you failed to honor your signature.
Banks would not also want to lend to someone involved in litigations, especially if it is about debts, or honoring commitments. If you are an accused in a crime, your banker will not tell you, but will likely start to stay away from you. They will always be busy when you call but will be very polite if you catch them. If you could read their thought bubble, you will see ‘if you could possibly do a crime, what more the small oversight of not paying debts’.
And banks do court checkings to see if their borrowers are involved in some litigation. Remember, they don’t know you.
In the absence of full information, they will play it safe. If you are the litigious type, they will presume that you would not think twice about hauling them to court. This time, practice does not make perfect and is actually detrimental.
Banks will also be wary of people with credit-unfriendly vices like gambling. While some banks are willing to finance casinos, they would not want their customers contributing to the casinos’ profits. Especially if it is the money they lent that increases the casino’s capability to pay back their debts.
Banks have long memories. The records of those with history of unpaid past due debts are stored in some credit bureau for years. It will require a lot of effort to overcome a past of credit transgressions.
Those thinking of borrowing must always watch their credit record and anything that may be interpreted as bad payment behavior.
Maybe you can look at it positively. This character thing, which banks look into, contributes toward the making of a better society, even if that is not the original intent.
Tony Moncupa, Jr. is the President and CEO of East West Banking Corp. Please e-mail your questions, comments, suggestions to [email protected]
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