Lender Fatigue vs. Loyalty to your Bank

bank workout

Sometimes banks are heroic in their support of a customer who hits a rough patch. This over-and-above support from a bank often wins the undying loyalty of the borrower. Being loyal to those who really help you when the chips are down is a great thing. However, this loyalty can sometimes kill the borrower.

Some businesses are just up & down by nature. There are many reasons for this: management, markets, weather, government, technology, disruptors, etc. Banks have a desire for consistency. They don’t like variability in the borrower’s results. If you have had a few up & down cycles where your bank really supported you, you need to temper your loyalty to the bank with the realization that the bank may be reaching the end of their tolerance.

At the next down cycle, the bank may develop a serious case of “Lender Fatigue”. If the bank catches this disease, it is often fatal…to the borrower! Even if the next down cycle is not your fault – perhaps it was caused by what lawyers call an “Act of God” – the bank at some point says, “Enough. We don’t want a series of excuses, we are through”.

So, in the end, your undying loyalty gets rewarded with an existential crisis. You will have extreme difficulty getting another bank at the bottom of a down cycle. If you had moved to another bank during your last up cycle, your most recent plunge may not have been the deal breaker that it was to your former bank. The new bank simply hasn’t been fatigued by your previous roller coaster ride.

The sad fact is that if you own an up & down kind of business, you need to throw bank loyalty out the window because your bank will not be loyal to you forever. You need to change banks every few years, timing the transition during an up cycle. You also need to fix your up & down cycle problem – but that is another issue.