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When your client is under pressure, they might choose to ignore or avoid looming debt problems in their business. Here’s how to stop this impacting both them, and you.
There’s a myth that the unique and powerful ostrich deals with oncoming danger by burying its head in the sand. What it actually does is lie on the ground to camouflage itself, in particular laying its long neck along the ground. It hides in plain sight until the problem goes away (or doesn’t).
When your SME client has fallen behind in loan repayments, it’s critical that they don’t emulate the ostrich, even thought that might be their first instinct. Being proactive and transparent with lenders and other stakeholders is a far wiser approach.
According to Bronwyn Penhaligon, of Penhaligon Applied Psychology, it's critical to manage the natural anxiety that arises when a business runs into problems.
“Quite often in cases of business strife we see the owner prioritising “being busy”, which makes them feel like they’re doing something about the issue, but they’re really only tinkering around the edges.”
“Not taking any constructive action feeds the anxiety, which just gets worse. Actually doing something about the problem is what brings relief,” Bronwyn explains.
The smartest thing to do is to call the lender and explain the situation. It can be daunting to take that step, particularly because we tend to project our worst fears on to it.
“Understandably, people hate talking about their business having problems,” says Tim Morosoli, Head of Collections at Banjo Loans, who has over 35 years’ experience in this field.
“The job of the lender’s Collections team is to make square pegs of debt fit round holes of payment. It must be realistic, something that the customer can achieve.”
“Lenders like Banjo are focused on solutions, not judgment. We have a suite of available options to help borrowers, such as restructures, delayed payments, extended loan period and so on,” says Tim.
Maintaining good repayment habits on business loans is crucial for the long-term success and financial health of any business. Open and honest communication also has strong benefits, such as:
- maintaining trust - being honest about your financial situation helps preserve the trust and credibility you have with your stakeholders. They are more likely to support you through difficult times if they know you are transparent and committed to resolving issues.
- avoiding legal consequences - concealing or ignoring financial problems can lead to legal complications. Being forthcoming about potential defaults may lead to a more manageable resolution that avoids costly legal actions.
- reputation management - honesty in challenging times can also help protect your reputation within the business community. Your stakeholders will appreciate your integrity and your efforts to address financial difficulties responsibly.
- strategic planning - acknowledging possible defaults allows you to plan strategically. You can explore options with your lender or investor to address the underlying issues causing financial strain.
The lender can help work out a repayment plan, but they can’t give financial advice, so encourage the client to speak with their accountant, or financial adviser. Or invite them to seek the support of a mentor – many business organisations offer this.
As a broker, you’re sometimes under considerable pressure balancing borrowers who’re having cost of living issues or business problems, while maintaining relationships with lenders.
“Brokers can sometimes feel like the meat in the sandwich,” says Bronwyn Penhaligon. “It can have an impact on their mental health and wellbeing.”
“As a trusted advisor, you may be getting distressed phone calls when your client has financial challenges. You may be shouldering the responsibility or feeling the need to provide a solution for a business that’s flailing.”
“Talking to someone about it is important. Often it can be something as simple as a long walk and honest chat with a trusted friend or relative. Sometimes we build up problems in our heads to be more complicated than they actually are.”
“However, if you notice that you’re really struggling to focus and are quick to anger or frustration or wake up and feel a sense of doom every day, then reach out to someone like a counsellor for support.”
The last word is from Tim Morosoli. “I can’t stress enough – get your client to pick up the phone and talk to the lender. The sooner they do it, the less stress they’re putting on you, and the faster a solution can be worked out. It’s more than likely there will be answers that they haven’t thought of.”
“Most of all, the lender will be happy that they’re proactively discussing their financial challenges.”
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