"Most of the change we think we see in life
Is due to truths being in and out of favor."
Robert Frost
Mr. Smith (not his real name) was finding it difficult to make his loan payments. His import store was facing new competition from a recently-opened emporium across town, and an international supplier was pressing him for payment.
His bank operating loan was stuck at its upper limit and I had been compelled to send back a series of cheques due to insufficient funds.
To make matters worse, his three partners, all young pulp mill workers in their 20s, abandoned him and had nothing to offer by way of settlement. Things were a mess.
The first few days are a crucial time in the working out of a "special loan." If the bank doesn't act quickly, more agile creditors will get satisfaction and the usually-larger bank loan will remain unpaid after the bank-funded assets are long-gone. As usual, in this case the appropriate course was largely a matter of trust.
Could we work with this guy, or should we force our hand and appoint a receiver? It wasn't just me who needed to feel comfortable working with Smith. I had my superiors in Vancouver to convince as well.
I was sceptical of Smith. I thought I knew his type; a young alpha male, fast-talking, self-confident to a fault. He had no other assets we could rely on. Would he walk away?
But Smith said something that struck me as genuine in one of our early meetings. In earnest, he promised: "When all is said and done, all I want from this is my good name."
Really?
Nobody goes to a bank repo sale with the intention of paying fair market value. In retail, the bank is usually lucky to get 20 cents on the wholesale dollar for repossessed stock, only to subtract collection costs from the meagre tally thereafter.
Thus, it is good business, if the client is co-operative, to allow for an orderly wind-down. This reduces our work-out costs, increases our revenue from limited resources, and allows the client to maintain some dignity.
After convincing my higher-ups at the bank that we could trust Smith, I put him on daily, then weekly inventory inspections. I reviewed his till tapes regularly, compared them to bank deposits, and allowed for some sharing of income among creditors.
A few months later he came in to make his last lump sum payment. We pulled out his one remaining piece of meaningful bank documentation - a promissory note. We had planned on burning it together in celebration outside the bank. But on this momentous occasion, we decided it might make more sense to frame it.
After all, it had his good name on it, still intact.
Mark Ryan is an Investment Advisor with RBC Dominion Securities Inc. Member CIPF.
