Dogs behaving badly

Have you seen the TV show, “Dogs behaving very badly”? I have watched it with interest. We did not use dogs on our sheep or cattle properties. With sheep I used a bike and car.  With cattle, we rode horses at first then we moved them with a car and on foot. Chatting about working dogs one day with my far more knowledgeable cousin, he remarked, “The thing about using dogs to move stock is that - the man needs to be smarter than the dog.” The TV show “Dogs behaving very badly” illustrates that, as any dog-lover would see.

Banks behaving badly

How do banks behave badly? Well for a start not all do. Bendigo Community Bank is just superb. But the bigger the bank the more power it wields and the more power anyone has, the more it tends to corrupt them (Lord Acton). The big banks and some second tier banks are so corrupt that in their quest for ever increasing profits, they deliberately trap unsuspecting customers into loans they cannot afford. These banks turn a blind eye to overstatement of assets and earning capacity and understatement of expenses by potential borrowers. Most borrowers are not accountants or lawyers and many banks do not want them to obtain professional advice from good accountants and lawyers about a loan. Many accountants and lawyers are not themselves familiar with the debt traps into which farm borrowers can fall. Often they have relationships with banks that produce them new clients and so they can easily be compromised. In addition these banks can be utterly ruthless in applying higher interest rates just because the borrower hits hard times and cannot pay on time. A crop can fail or a customer go broke and the bank may come in and drain all the money out of their bank accounts so they cannot trade, then take recovery through mediation, receivers, managers or auction off the farm. Borrowers see only the good side of the bank when borrowing. The thugs get involved when the borrower is battling to make payments on time.

Borrow Better

As with dogs there are things to do with banks and things not to do. My father-in-law would say “Start as you intend to finish.” That is particularly important in dealings banks. The Moneygram service which we started in 1987 is now called Borrow Better. There is no better way to begin a banking relationship because it immediately establishes that the borrower is boss. That is important and something we promote hard at GBAC because so many people go to the bank almost holding out a begging bowl, signalling to the bank that they desperately need the money and will take it on any terms they can get. My mother used to tell me that bankers were the sort of people who would sell someone an umbrella on a fine day, but not  wet one. They will offer a customer a loan when the customer does not seem to need it, but refuse one when the borrower seems desperate?

It is all about recovering the debt!

Why would that be do you think? It is not that hard to understand. The person who looks like they do not need the farm loan anyway, appears to be a good risk. If they have plenty of cash and plenty of assets like the farm, plant and equipment,  livestock or fodder stored, then the chances are that the bank will be paid interest on time, every time and receive the money back on the due date. If on the other hand the borrower is really desperate, has no other cash and few  assets that can be quickly converted to cash, the bank might reasonably speculate that interest payments may not arrive on time and the loan may not in fact be returned on time, if at all. So it is better for a borrower to convince the bank that they do not really need the loan.  

“Managing” the  Bank

That approach also has a very significant impact on the rate of interest the bank is likely to charge and the bank charges it might apply to the loan. The impression of easily managing the loan can be maintained by the borrower or their farm debt consultant, quickly carefully managing the bank from the start. If not from the start, then certainly if it looks as though some future payments may be difficult to make. That is why the smart borrower should assess the gain that is expected to be made by taking out the loan. Hopefully it is to be for some purpose that will deliver a gain far greater than the cost of bank debt being taken on. All debt carries risks, some greater than others. Once a farmer knows what sort of gain is expected from the loan, that farmer can assess the cost/benefits that might flow from engaging a bank debt consultant who would see that it goes smoothly until repaid. Sadly for many borrowers, they do not really do that exercise as such. They just see the loan as enabling the purchase of  real estate, provision of working capital etc without any detailed calculation of what may be gained. It is as they say, a “Pig in a poke”.

Crises

A bank loan to a farm will, if properly managed usually avoid any of the stresses experienced by those who “just let it happen”. Farmers have additional problems not experienced by most businesses – the weather. A classic case of banks behaving very badly arises when the bank forecloses on a farm loan or sends the farmer to farm debt mediation when the farm is drought or flood affected is behaving very badly indeed. The best banks will discuss the situation with their customers and come up with alternative payment arrangements. If a bank debt consultant is running the show for the borrower, that consultant will handle those crises well in advance of the bank noticing them. Then alternate arrangements can be made and in extreme circumstances the existing bank put into neutral while the consultant finds a better on to provide refinance. As with the dogs, it is best to train the bank to do what the customer wants. It is not difficult at all.