Leverage and overplaying your hand.

by: Shlomo Chopp, Managing Partner

The gunman has a gun to your head. Do you have leverage?

What, you say, no?

Really? Let’s examine that.

Do they want something from you? Sure—otherwise, why would the gunman need to put a gun to your head? Can the gunman take it from you? Well, if they were able to do that, then why would they need a gun?

Having it to your head is just the same, you say? But if that were true, then what if you say no? You lose? Well, the gunman does as well.

Borrowers often fail to recognize that they have inherent leverage in every loan workout negotiation—albeit, this leverage is confined to your ability to deliver an improvement over the alternative where you aren’t needed. But what is the alternative? What are you offering?

The only way to ensure you understand your risks and what you’re offering is through thorough preparation and education. What will the lender assume as a baseline? This isn’t what you think; it’s what the market thinks. It’s how a counterparty, viewing things through their own lens, will see it. What can you do to validate your approach or understand how they think?

Once you know all that, you can assess the odds, identify likely needs, and determine what inherent leverage you have—and whether you can maintain it. It’s not impossible to talk someone down from their two options—domination or killing you—even when they have a gun to your head. But it requires a deep understanding of both their circumstances and yours, so you can win hearts and minds.

Most borrowers can’t do this on their own because they aren’t impartial, they know too much, they have too many unknown unknowns, and they’re emotionally invested.

Make no mistake—it’s not about convincing a lender as much as it is about developing a game plan built upon knowledge. Have you done your scouting? What’s your plan? What’s your advisor’s plan?