TOP LOAN WORKOUT TIPS FOR BANKERS
Navigating the troubled waters of the loan workout can be dangerous and frustrating territory for bankers. However, there are a few tips that bankers should keep in mind when dealing with a loan workout to avoid getting more than what the banker bargained for.
Don't Take It Personally
Sometimes when a banker makes the decision to proceed with a loan workout, it is often after the borrower's promises have been made and broken, and the banker can sometimes feel like he or she has been taken in by the borrower. Bankers should fight the urge to get emotionally involved in the workout since emotional decisions can often be bad ones. Bankers should avoid being overly aggressive and not attempt to "punish" the borrower. At all times, the banker should never use language or threaten actions that would be embarrassing either to the banker or to their bank if such statements were made public, such as in a courtroom.
Know Your End Game
A banker should not embark on a loan workout strategy without having the end game in mind. Don't waste time and attorneys’ fees in pursuing a judgment against an uncollectible borrower. If there is no money to be collected, the banker should do what he or she can to collect in the most efficient way possible, and then the bank should take its loss and move on.
Dig In to the Details
Bankers should be aware that every loan has flaws, whether those flaws are in the loan’s documentation, in the valuation of assets, or a problem in perfection of the bank’s security interest. Ideally, a banker should try and fix these flaws before the bank files suit. At a minimum, the banker should at least know what these flaws are so that the banker is aware of the potential weaknesses in the case. Bankers should be encouraged to seek out attorney assistance with review of the file, but a banker should not solely rely on the attorney's knowledge of the documents in evaluating a workout strategy. The bankers should be as familiar with the details of the loan documents as the attorney, if not more so.
Be Decisive
The bank should review all its options in determining a workout strategy, should choose the best available alternative, and then move forward. One pitfall that banks often fall into is to take a major step and then re-think its actions. While a workout strategy may need to be revised as time goes on to allow for new information or developments, once a plan has been decided on, the bank should move forward as quickly as prudence allows.
Beware of the Boomerang
If the bank decides that the workout strategy should involve a lawsuit, be warned that lawsuits can lead to counterclaims. If the bank takes an overly aggressive position with the wrong borrower, it can lead to a counterclaim. Banks should be warned that once a counterclaim has been filed, the bank will not be able to shake it, even if the bank is willing to drop the original lawsuit.
A banker that keeps in mind these tips can achieve more efficient and more satisfying collection results.