Have you ever borrowed money for your firm?
Silly question. So easy to do. Walk into a bank. Pass a credit check. Sign some papers. Bingo Presto. Cash in your account.
Whoa Big Boy. Sign some papers? Bingo Presto?
A banker's biggest lie:
"Those are our standard forms. Every client signs them."
Not true. Not every client. Someone who knows what's going down will not. Such a person will first remove the contract that harks back to the days the Bible was first written on parchment. And debtors went to prison while their children went into slavery. Or worse.
But banks must lend you money. It's what they sell. Not the money itself. When you borrow it you're sorta renting the use of it for a while. Like renting a house. You get to live there while paying for the privilege.
With a bank you get the right to use their money while paying for the favour.
You have more rights as a tenant than you do as a debtor.
A landlord cannot change the locks to keep you out, no matter the reason. A bank can remove your overdraft at will for any reason and still demand the rent.
You won't often see this kind of action from your bank. At least not from the nice folk in front who lend you the money. They're the sales team.
But when things go wrong...
This happens to 90% of small businesses during their lifetime. At least once. Your firm doesn't care. It's not human. You, the business owner? That's another story.
When things go wonky the bank will contact you fast. They want you to confirm that things are not as bad as they look. Or to repay their loan right now. Yesterday you were a valued client. Today you are a debtor. (Your status is slipping.)
When the front guys lose that lovin' feelin' they pass your file to the team in back.
This is the collections team. Hundreds of people in a call-centre. They don't know you. They don't care either. They care about getting their own wage at the end of this month. To get that they must get some money out of you. And you're call #69 today.
One such call-centre fellow put this into context one morning after he woke me at 6am. He called to tell me that my Honda would be his Honda if I did not pay last months instalment by noon. I muttered about his timing.
"Mr Carruthers," he said, "as long as you owe Wesbank money I will call you when I want!"
I made a mistake. I thought I was still a client. Turns out I was a few days from being lower than a debtor even.
I have worked with hundreds of people in this position. I recall one person fighting his bank also facing his wife wanting a divorce. This happens often. "It's so unfair," he said, "I only slept with my secretary once!"
When the bank collections team gives up they hand "your matter" to a team of lawyers. Their job is to get you into court so they can take your house to pay for your Honda. Now you're a judgment debtor.
When you're homeless and Honda-less and the costs are still not paid they might give up.
But, banks are about money, not relationships. (Ignore those adverts. Nonsense.)
So they sell the remnants of your initial loan, the contract, to yet another firm of lawyers. These guys buy the judgment for a few cents in the rand. So they buy your R20K remaining for R275. They chase you like vultures picking the eyes out of a dead carcass rotting on a rubbish tip.
Not even an ex-wife chases you with as much enthusiasm.
And when they give up in 2029 they will sell your details to a data broker to sell to a bank who will start calling you to lend you money. At this point your name is worth more than you are.
As an aside, the POPI Act will try to slow down this lunacy.
Still here? Great. 90% of small business owners have this experience at some point. All because their business needed funding.
Is it possible to enter this small-business gig with our eyes open? What do we learn about money at school? Who tells us about suretyship contracts?
I invested the first four years of my working career into Barclays Bank. (Now FNB.) I studied three years to be a Certificated Associate of the Institute of Bankers (SA). They don't teach you this stuff there either.
Hint: Your bank is the source of most of what we know about money. Are they going to show us the dark underbelly? Yeah, right, like MacDonalds has pictures of abattoirs in every restaurant.
Eight days after I closed the firms account at Standard Bank my ex-manager called me. "Well done Peter," he said. "You told us you'd repay the R200,000 business loan before the firm closed. We thought you had no chance."
"You came close. You were short by R8000. But no need to worry about that. We took the funds from your personal account this morning. So we're all square."
Banks rely on us not knowing enough about money. We can't help but be unequal partners in the lend/borrow process.
Now that you know the path from the banks side, want to know what you can do to not play their game?
On Friday I re-launch the only course in the world teaching how to survive business setbacks. The skills you learn will prevent the fallout I talk about here. Hold tight. And don't sign anything until then.
Save R1000 on the CrashProof your Business Course.
Your R497 investment in your future will be the best investment you ever make.