A time for courage in lending

2020 has proven to be a time that we need courage to push through. Some of the definitions of courage in the dictionary are “the ability to do something that frightens one”. Another one is “strength in the face of pain or grief”. Melanie Greenberg, Ph.D. listed six attributes of courage in a Psychology Today article as: Feeling fear yet choosing to act, following your heart, persevering in the face of adversity, standing up for what is right, expanding your horizons by letting go of the familiar, and facing suffering with dignity and faith.

I grew up in Fulton, Missouri, the home of a memorial to Winston Churchill, as he gave his famous “Iron Curtain Speech” in my hometown at Westminster College on March 5, 1946.  Many folks in that area hold Churchill in a place of honor and I thought a quote from the British Bulldog would be appropriate here. “Courage is rightly esteemed the first of human qualities because it has been said, it is the quality which guarantees all others.”

I want to bring some thoughts on courage to you before bringing up the idea that it takes courage, perhaps more now than before, for the lender today. Let’s face it, there is a part in each of us as we attempt to preserve the CU’s assets, we seek to hunker down and let the problems of the world, whether they be COVID, economic shutdowns, riots, or unrest, pass by and allow things to “normalize” before getting back into the full swing of lending.  Staying in the foxhole could have devastating impacts, like we saw when we shut down large sections of the economy.  There are also other devastating impacts that are in a recent meme I saw with a man with his head buried in the sand like an ostrich.  The caption read, “when you have your head in the sand, you expose the rest of your body.”

Borrowers and Portfolio

Courage is needed to understand the current business condition of your borrowers.  Today, this is pretty darn near impossible. How do past risk ratings apply when we have a situation that has impacted the entire world? How do you see what impact a shutdown and possible bounce back will have on your members? What if you make a mistake in your assessment on a borrower? Do not worry about that last one; you will miss seeing some of the risks. But do not let that stop you from the need to take as realistic of a view of your borrowers and portfolio as possible.  It requires looking at more than just historic financials as the first two quarters of 2020 are probably not very valid markers for future performance.

What help do your borrowers need at this point?  As a lender, you are one of their most trusted financial advisors. You may see road signs that they do not see and can help them to preserve their equity and build capital in troubled times. This requires being genuinely interested in their business.  A constant study of the economy and the world around them is also necessary as we look for things that may impact their business.  Remember, your job is to inform and bring up the issues, but the business owner is the one who has to make the decision of what to do.

Lending Infrastructure

Along with your portfolio, it takes courage to look at your present lending infrastructure — staff, technology, training, tools, etc. Here you need to see what the strengths and weaknesses of your department really are. In times of crisis, weaknesses tend to stick out like a sore thumb. Some questions to consider are:

  • Do you have an established education or training program for your staff?
  • Do you have the right analytical tools to help you assess risk?
  • Is your reporting at an accuracy and timeliness level where you need it?
  • What experience does your staff have with working through a recession and the problems that come with a paradigm shift in how credit is viewed?
  • How will you handle complex problem loan workouts that involve more than good skip tracing and calls and emails?
  • How much time will all this new work take?
  • What resources can you tap into to help fill in the gaps in your department?–Can you get good new volume with participations? Utilize third parties to help with serious problem loan workouts?  Find outside professional credit folks to help with underwriting?  Have any new classes or training programs for your team?

These are hard questions and it takes courage to find the right answers. Many of them may not be what you really want to hear. It is always easier to enjoy a life of ease, but it is the stresses that help you grow. True leadership requires you face the situation as it is now and chart a course to navigate through the problems. Not answering these questions in these tough times is a form of self-delusion. Many times, the first step of courage is finally being honest with ourselves.

Lending Opportunities

The next area where courage is needed is with your new lending opportunities. Loans are an important source of capital to fund economic growth in your community. If all the faucets are shut off, then pretty soon growth will evaporate like water from a pool that is not constantly filled. As we begin to emerge from the crisis, many of your fellow lenders may elect to stay on the sidelines. There will be tremendous opportunity to expand and establish new relationships that are ignored by the lender who is cowering in fear.

Courage requires action even though you do not have perfect knowledge of the situation. We do this in underwriting every day, but now things are a bit hazier. It takes courage to admit what factors you do not understand that will impact the borrower’s chances of financial success. Perhaps this is a time to help mitigate risk by using more government guarantees on your loans. Maybe sharing the risk through a participation is in order. You must continue to find ways to seek out good loan requests and produce new credits in this time. The borrowers and communities that you serve are depending on you.

Courage is needed as you look in the mirror. As a lender and as a person, you need to understand your own strengths and weaknesses, likes and avoidances, as you understand how to lead and manage the most difficult follower—yourself. Do you tend to see some clients through rose-colored glasses or always see the worst in a borrower? It is time to look realistically. Are there gaps in your knowledge that you have pushed aside?  It is time to begin to set aside time to fill those gaps. Do you avoid the most unpleasant tasks?  It is time to tackle them.

Courage is what we need today to begin to master the impacts that the 2020 worldwide tragedies have had on our portfolio, staff, communities, and ourselves. It is time to take the first step in moving forward, charting a course for future success, and acting upon it.

Phil Love

Phil Love

Phil leads Pactola, a CUSO devoted to commercial and agricultural lending, participation management, credit administration support, lender education, and third-party loan review services.  He has over 35 years in the ... Web: https://pactola.com Details

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