Today, lenders across Maryland are facing stiff headwinds. From my perspective, lenders can’t seem to catch a break. Regulators want them to limit risks while at the same time increasing business. Management must tightly control expenses to maintain earnings, but for many institutions, the gains from those efforts are eroded by a low rate interest rate environment and continuing efforts to work through past loan problems. And of course, low demand from qualified customers and competition from old and new foes in the marketplace means that lenders must work ever harder for their returns. All in all, the current environment is challenging lenders to be creative in order to not only gain a position as one of their customers’ trusted advisors, but also to sell their products and services.
Because of their relationship with customers, particularly loan customers, lenders have a vested interested in seeing their customers succeed! What many loan officers may not realize is that the tools that they have at their disposal to monitor their customers’ performance also provide information that can be shared with their customers for the benefit of both parties.
Take for example, a certificate of good standing, known formally in Maryland as a “Certificate of Existence.” According to Maryland law, businesses that are chartered by the State generally must properly register to do business, file all required annual reports, pay all the necessary annual fees and taxes, and comply with all other applicable state requirements. An entity that does all of the foregoing is said to be in good standing with the State of Maryland. In that case, the State of Maryland, will upon request and payment of the appropriate fee, issue a certificate of good standing for the entity to use to prove its status.
Not being in good standing simply means that the entity has not kept its yearly renewal up to date or that all fees and taxes have not been paid. Upon request, the State of Maryland will even issue a certificate stating that the entity is not in good standing.
While often deemed a “paperwork snafu” or a “technical oversight,” many businessmen fail to appreciate the serious consequences that can result from the failure of their business to remain in good standing.
In some cases, the consequences of not being in good standing may be as simple as a bank or creditor rejecting a request to open an account such as a checking, savings or credit account, or perhaps the entity’s application to register to do business in another jurisdiction is rejected. At other times, the failure can prove devastating.
If a company is not in good standing it may lose business opportunities because its legal ability to enter into contracts may be impaired. In this era of enhanced focus on compliance issues, it is not difficult to conceive of the various scenarios under which an entity could lose a key contract or bid because of its failure to be in good standing. Consider also that the failure to be in good standing could negatively impact not only the entity’s ability to bring and defend lawsuits (e.g., collection actions or defending lawsuits), but could result in increased time and legal effort being expended in such actions to address and correct issues stemming from the failure to be ingood standing. Finally, the veil of personal liability protection afforded the principals by the entity status may be jeopardized.
Loan officers discovering a customer’s lapsed status should promptly bring that information to their customer’s attention. Done in a proper manner, the disclosure will not only demonstrate to the customer that the lender is closely monitoring the loan, but it will also enable the loan officer to use the lapse as a starting point of a conversation about the customer’s operations and the lender’s interest in helping the customer succeed. By using this monitoring tool, the loan officer not only protects the lender’s interest, but also has the opportunity to enhance the relationship with their customer.
Because they not only regularly monitor their customers’ status, but also their credit, property tax payments, etc., loan officers often learn of information about their customers’ operations before their customers do. Sharing that information is not only a good defensive lending practice, but also a marketing opportunity if approached properly. A true win-win scenario!