Shakespeare’s “Neither a borrower nor a lender be” and the Bible’s “The rich rules over the poor, and the borrower is slave of the lender” have been entirely ignored by me.
In high school and college, I mooched off my friends. My parents and Alice’ grandmother each lent us the down payments for our first two homes. I launched my first business with a “line of credit” that no bank would give me by accepting 8 pre-authorized credit cards worth $120,000 in combined limits.
Once I was making good money, from borrower to lender I went. The first loan I recall was to a sibling. When I asked my dad, “should I do this?”. He said, “Love always, money never”.
I ignored him too.
Since our first business became successful in the early 00’s, the dam has broken. I have an extraordinary amount to lend, in time and money that has led to many thrills of victory as well as agonies of defeat. Over twenty plus years, here is the sum of my learning.
- Trust is as precious as gold and, like gold can be stored or stolen.
- If you trust your borrower but do not verify, lend only money you can lose without remorse, then be pleasantly surprised if it is returned.
- If you measure your risk like a business, not a bank, you can reduce your risk by understanding how the borrower will be able to pay you back.
My lending career began in earnest with more of my siblings. In every case, I felt comfortable in sharing my treasure since each had a role in my greening. Similarly, I led with my heart among those less fortunate. These included emergency loans such as a friend from church in a payday loan trap, tuition to keep someone in school, or an employee needed a car repair.
Now, with dozens of loans for millions of dollars, we’ve learned that successful loans without collateral are mostly the product of coachability. Each borrower must attend classes to learn to write a business plan and a loan proposal. Most importantly, the business owner commits (in writing) to attend monthly network meetings where they can learn from their peers.
These are the lessons from 16 years and about 200 loans to people turned down by traditional lenders. Every borrower has a story, some wonderful, some wild.
The headlines?
Every bad experience made us (the lender) smarter.
Every good experience makes us (the borrower and the lender) better.
Peace,
Tim McCarthy
