Article 42 – Taking a loan is fine but if you can’t pay back…

by Tan Thiam Hock

HAVING gone through a few recessions and occasional global financial crisis in my lifetime, I have seen enough suffering by genuine business owners and their families.

When the going gets tough, the banks call in the loans and their cash-strapped business just fold up. The bank will then sell their pledged collateral and sue them till they are declared bankrupt. Standard operating procedures (SOP) for the bank and SOBbing by the poor chap.

Then you have property speculators and big-time stock market manipulators bankrolled by greedy bankers until the bubble burst and the market crash. All hell will break loose as all parties scramble to damage control mode. The cash rich speculators will survive but the bankers always end up with having to take an unwanted haircut. High margins come with high risks. Fair game.

To get a loan, small businessmen have to charge to the bank whatever properties they have as collateral. At all times, they have to sign a personal guarantee too, just in case the bank cannot fully recover their loan sum from the forced sale of the property.

Unless you are someone special with VVIP status, the bank will come after you. Trust me, bankers are sticklers to SOP and they will make sure your name appear in the classified pages for bankruptcies if you don’t pay up.

So, I am sure everyone is watching with great interest the latest promise in parliament by our Agriculture and Agro-based Industries Minister on the full recovery of the RM250mil loan from the National Feedlot Corp.

It looks like there were no properties charged to the Government as the 600ha in Gemas was leased from the Negri Sembilan government for RM200,000 a year and the condominiums were bought with the loan money. Did the borrowers provide the Government with any personal guarantees?

As with all loans, recovery of the loan sum will start with a demand letter saying that the bank/government is recalling the loan and you are given three months to pay back in full, principal sum with interest. Or else they will take you to court and sue you. Once they get judgement against you, the court will appoint a liquidator to salvage whatever assets you have and sell whatever cows and bells left to any interested cowherd with a big haircut. If you have signed a personal guarantee, you will be a bankrupt. Nothing personal, just SOP.

Now you are really on your own, with nobody to turn to. All your so-called friends are avoiding you like the plague. What can you do?

As an experienced restructuring expert and part-time lipstick salesman, my advice to you is not to hire sleazy advisors to solve your problems or you will end up suing him for unsatisfactory service levels filled with lies and empty promises.

There is no bypassing the SOPs. When the shit hits the fan, it is every man for himself. You still have to pay back… in full. Stay calm and meditate and God will show you the way.

First step is to look for a friendly tycoon who can buy over the cow business for RM250mil in the name of national interest. It is only petty cash to the tycoon but it will blend in nicely into his portfolio of staple food businesses.

Do not worry if nobody wants to talk to you now because the concerned ministry is already talking to a few parties for a friendly takeover. Maybe an attractive haircut might work.

If the first step doesn’t work, I suggest you take the next step with caution. You can borrow RM250mil from Ah Longs but make sure you pay the high interest rates or your house will be splashed with red paint and your neighbours will know about your non-payment. That would really be embarrassing.

Ok, maybe that was a wrong step to recommend. As a last resort, when in court, plead ignorance, blame everybody else for your ills. Be a man like William Hung, admit you have no experience and you did not know a bull from a cow. Since you have not signed any personal guarantees, they will only take whatever is left in the company which should be fine with you. It was never yours in the first place.

My simple advice to entrepreneurs who need bank loans to expand the business, make sure you treat the approved loans with utmost respect. The loan officers have put their heads on the chopping block when they recommended your loan application.

If you failed them due to mismanagement and misinformation, you can bet your last dollar they will come after you and make sure your next four generations will continue to pay your debt.

Oh yeah, another piece of an advice. Do not wear V neck pink t-shirts when you meet your bankers. Just play it straight.

There are just too much bullshit raining down on our heads nowadays and we do not need another downpour.