Are Credit Men Human?
The Gist of Interviews With Two of the Most Prominent Credit Men in Canada
THROUGH the drabness of a November drizzle, Farmer Jones applied his brakes with cautious care, drew his high-powered touring car to a gentle stop in front of the Oshkosh branch of the Bank of Montcalm, loosened the coon-skin coat about his neck, walked confidently up the steps and finally tapped upon the manager’s door. Yes, Manager Brown was in.
“You see, it is merely a case of giving me a little push over the bad hill,” Farmer Jones remarked easily a few minutes later, as they stood at the fem-decked window and
watched the drizzling rain-drops snuggling their way down over the glossy hood of that high-powered spectacle of the world’s progress. “I think a thousand dollars would see me through the Winter and Spring. It’s this way: and of course you will keep it on the quiet. As you know, the crops all around here were shot to pieces this year by the droughts and rains which got their seasons crossed. You see the result? Everybody is rushing to sell off stock because it can’t be carried through the Winter; but listen, Mr. Brown. I’m buying stock this Fall, a lot of it, when it’s cheap. And I’m going to get a couple of carloads of hay and oats shipped in whenever I want them. Get me? I’ll be the only man around here next Spring with any stock and I’ll clean up big. Yes, Mr. Brown, a thousand dollars would see me through, perhaps fifteen hundred, for the pesky oats are apt to go up any minute.”
In that instant, Manager Brown, controller of the destinies of the Oshkosh branch of the Bank of Montcalm, ceased to be a manager and became a credit-man. There in front of him was Farmer Jones, sporting around in a twenty-five hundred dollar car, wrapped in furs, and asking for a loan. Credit-map Brown might well have said: “Sell your car and you wouldn’t need to come to me,’’ or: “If you hadn’t bought that piano and gramaphone a year ago when the prosperous wave was making you a king, you would have the thousand now on your credit account,” but did Manager Brown say either of those things? He didn’t. He just sized up Farmer Jones in a quick flash of thought, recalled that the farm and buildings, totally free from mortgage, would be worth twelve thousand flat; he remembered as well that Farmer Jones had a reputation among his fellows as being a niggard for honesty; so he just smiled, reached over to his desk, and asked,
“How much will it be, Mr. Jones, a thousand or fifteen hundred?”
What Farmer Skimpy Got
BUT the retreating hum of the high-powered engine was still in Manager Brown’s ears, when he found himself interrupted by the junior clerk who hesitated a bit before he delivered his message.
“It’s Farmer Skimpy,” he apologized, “I told him you were frightfully busy, but he has been waiting all morning. I really can’t get rid of him.”
“Well, let him come.” Manager Brown heaved a sigh of the kind which jostles the burdens of the world from one shoulder to the other, and a moment later he was again at the window, staring at the rattle-trap excuse for a private conveyance which Farmer Skimpy had labeled a wagon.
“It is one of the hardest seasons which the banks have ever had to face, Mr. Skimpy,” Manager Brown was remarking cautiously. “You possibly could net imagine the number of calls we have had upon us fer credit, and there has been nothing else to it but for the head offices to draw the reins tight. I would like to let you have that thou-
sand, but I haven’t the power to extend credit to that extent. You see, the head office has been nipped a number of times during this lean spell by managers like myself who got too human and handed out loans to every person who came along, so the rule now is that all applications for loans of more than five hundred dollars must be sent, on to¿the head office for the creditman to pass upon. I tell you what I’ll do, Mr. Skimpy. I’ll take the particulars and forward your application.....”
“But will you recommend the loan?” Farmer Skimpy demanded desperately, in a way that informed Manager Brown that he must already have tapped at the door of the rival branch bank up the street. So Manager Brown sighed again.
“I put it up to you squarely,” he returned, with something of Farmer Skimpy’s own desperation. “You have already told me that the farm is mortgaged to within a thousand of its value, that you are a year behind on interest, and that you haven’t paid for that binder you got two years ago. Now look yourself fairly in the face, Mr. Skimpy, and tell me if you would be a safe credit risk. Remember, if the bank loaned you money, it would be the deposit of somebody else in this town, perhaps of the Widow Wight,
or the legacy of the Orford orphans, or.....”
Farmer Skimpy sagged wearily out of the office, across the muddy street to that ramshackle wagon standing there in the drizzle, and as he kicked a spoke loose in the hub of a wheel, he remarked to himself with a tang of bitterness:
“I don’t s’pose it would of been so bad if I hadn’t alistened to the way he threw it at Farmer Jones.”.
So the point crops up of its own accord:—are those moguls at the head of the credit department of a banking institution guided by the instincts of human emotions and sentiments, or are they just calm, well-oiled cogs which fit into the financial wheel and measure all credit upon the solemn basis of cold business? Or is the credit system of a bank but another outworking of the old doctrine of ¿“to
him that hath shall be given......?”
That, however, is something which each person must answer for himself or herself, if perchance the answer is to be found in these details of the broader outlines of the
credit policy adopted by the leading Canadian banking institutions through' this period of financial depression when credit is hard to get, when it is being scanned, more rigidly than ever before, and when at the same time a certain measure of the whole of Canada’s future prosperity seems to hinge around the wisdom of the credit men. These details, incidentally, were furnished by the credit men of two of the Dominion’s most reliable and substantial banking organizations, and while they are not intended to outline the precise manner in which any one bank would handle any definite application for credit or extended credit, they are vouched for as being the general policy adopted by the bankers’ association.
In the first place, in approaching the pro-
blem of credit, it must be borne in mind that when a bank manager lends funds to Farmer Jones to carry his stock over the Winter, or to drygoods-man Smith to stock his shelves a trifle higher, or to some million-dollar project which comes along with a smooth tale, the bank is in reality handing over the money which some other citizen put in its hands a few days previous for safe keeping. Perhaps even it is the hundred dollars which you slipped through the wicket a week ago. So if one is inclined to say that Manager Brown was not sufficiently human in his treatment of Farmer Skimpy, and that the law of “to him that hath” was slipping along on greased cogs, it might be well to remember that that problem of the human element in the credit business is a two-edged sword which cuts both ways and that the credit man has to decide which gash would do the less damage.
It is also perfectly true that Manager Brown was quite right when he informed Farmer Skimpy the credit maximum allowed him by the head office was five hundred dollars and anything stiffer than that must be cautiously scrutinized by the central credit man, though of course various banks have different maximums, fluctuating as well according to the efficiency of their managers. But in the case of Farmer Jones, who got his fifteen hundred dollars with a smile thrown in, it was a matter of the functioning of the human element. Sentiment might have dictated that Manager Brown take a chance and lend the money to that poor wretch of a Farmer Skimpy.... but remember, it was your money, and would you have taken a business chance on downtrodden Skimpy? That is why the credit department of a banking institution has become one of the most important factors in the future of Canada, particularly at this moment when all eyes are straining to catch the first faint rose-flush of dawning prosperity upon the horizon; for the credit man is, in one sense of the word, the advance agent of Fate with the power to flip the cards either face up or face down for any particular individual.
For instance, into the central spot of the credit man’s problems there has stepped a figure known as the Farmer of Canada. Ask any credit man, and he will doubtless tell you that the biggest snarl which his department has to face to-day is the farmer, chiefly the farmer of the West. As to Ontario, the farmer as a whole is classed as a safe risk, though of course there are hundreds of Skimpys scattered here and there.
But just take a look at those Skimpys, the hundreds in the East and the thousands in the West. The Managers Brown, knowing that it is the money of other people which would be at stake, appreciate the folly of asking the headoffice to extend credit in such instances; for they are the banks’ agents right on the firing line, they have been shoved out into the far districts for the very definite purpose of coming face to face with their customers and learning all about their character, their personal and business integrity; and they are there, as well, to act as the banks confidential advisers.
Should they shut their
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eyes, listen to the sobbing strains of sentiment, forget all about the mortgages on the Skimpys’ farms, and recommend to the head office credit man that Skimpy should get his loan, what would be the result?
There are more things than one which might happen; and that is why one says that the credit men are the advance agents of Fate ready to flip the cards for or against a man. With his thousand dollars, Skimpy might pull through. It might be the light which met his eyes during the darkest hour of the storm, and which guided both himself and his family through to the new land of prosperity; or. . . .it might be just another anchor of debt wrapped about his neck and pulling himself and those about him down into the morass of ruin. So there sits Credit Man Brown on his throne. Or rather he stands at his fern-decked window while the processions of ramshackleFanner Skimpys drive up and rap at his doorway in vain; and when he sees the long string of them trudging away again he says to himself :
“Poor devils. Perhaps a thousand dollars each would see them through.....But
then again, it’s somebody else’s money back there in the vault. ...”
So each, perhaps, can answer for himself.... .Was Credit Man Brown human in his treatment of the Skimpys, or was he not?
Besides, there is that other little army, chiefjy of Westerners, who cornered up Credit Man BroWn some years ago when the most prosperous period of the wheat boom was on, roped him and were leading him off for a jubilee, when something happened. It seems that on the way to the jubilee they missed the route, slipped into the quagmire, and in their desperation, they clung to the rope which was about Credit Man Brown’s neck. The rope was immediately drawn taut; so Banker Brown has been struggling ever since in a vain effort to cast it off, while the Westerners have been trying to use it as the lever to pull themselves out of the quagmire back upon the highway of prosperity.
The situation is an embarrassing one, both for the farmers and for the bankers. For the banks, having been drawn to the edge of the morass, have alternative steps which they can pursue. They can cling to the rope of credit in the hope of pulling the western farmers out of their quagmire of difficulties, or they can suddenly whip a knife out of their pocket and cut the rope of credit. But ask the credit man what he is going to do about it, and the chances are ten to one that he will say : “We stick.”
That Western situation, of course, could not have been foreseen; besides, the credit men point out that though the bulk of the banks have been drawn in pretty steeply by the borrowings of the western farmers, the failure of the farmers to meet their notes has been mostly due to a chain of unfortunate circumstances. The banks, incidentally, will not tell the percentage of western credits which were met last year by those to whom credit had been extended, but the farm implement manufacturers will tell the tale, and their experience doubtless does not differ greatly from that of the banks. The story of two of the big implement industries is that last year the West paid to them respectively 10 and 13 per cent, of the credit which had been extended in the form of notes on machinery, while Ontario, on the other hand, met ninety per cent of its notes given in the same manner. Still, as mentioned above, it was misfortune rather than mismanagement which created the present banking situation west of the Lakes.
For instance, we will say that Farmer Bright, out in Middle Saskatchewan, approached his bank manager back in the Spring of 1919. Bright hitherto had been prosperous, his character was unspotted, he kept his nose to the furrow, and his wife was a trudging heroine; so when he dropped in on Credit Man Brown he was met with the handshake of goodfellowship.
“It isn’t much,” he smiled off the situation, “but you know, Brown, that a swath of hail caught me last Fall just a week before cutting time and wiped me out. It’ll take five hundred to seed me this Spring.”
Of course a man like Farmer Bright would get the five hundred, for Manager Brown knew perfectly well that one
good crop meant a clean pile of five thousand; but in the spring of 1920 Farmer Bright was back again. It wasn’t the hail this time; it was the rust. Twelve months later, the story he had to tell was one of drought, and since by this time all his reserve of stock and clothing and farm implements had been pretty well eaten up, Farmer Bright was in the position where he simply had to ask for fifteen hundred, and where he could have used two thousand. That meant much scratching of Manager Brown’s head, and a long letter to the Credit Man of the head office.
Just there was the Rubicon. Rather, it was the tightening of the rope about the neck at the edge of the quagmire. To cut the rope and let Farmer Bright sink out of
sight in the morass......or to stick?
And if Bright sank, there were thousands and thousands to sink with him. The banks stuck in the Spring of 1921, and they are sticking in the Spring of 1922. As a matter of fact, judging from the stories of the Credit Men, they are in it to such an extent that they feel that the whole future of the West depends upon them. They could cut the credit rope and let the West sink, but the feeling is that if they did the result would be western chaos and financial bankruptcy for many years to come.
“Have the western farmers taken advantage of the situation?” one is impelled to ask; and the answer of a Credit man is “Yes. . . and No.”
“They really took advantage of us in the first place by practically compellingcredit,” is the answer given; “for what which the East built up carefully through a process of years in the way of credit privileges, the West simply demanded as a matter of right. And they got it. An easy matter, for the farmers always get what they want from the banks of Canada.
“Take the branch managers; there never was such a spectacle as the manner in which they used to grovel in the dust before the farmers, begging for their business, fighting for it; so do you wonder that the West took the credit when and as it wanted it? They took advantage of us in that way, yes. But now, no. Perhaps an odd farmer here and there breaks beneath the strain, throws hishands into the air, leaves his debts and everything else behind him, but the great bulk of them stick, as the banks are sticking.”
But the credit situation is not solely one of the farm, by any means, though the Credit Man does say that the western farmers are the poorest credit risks in Canada to-day. On the other hand, it would seem that the condition is universal, though just at present, in view of the rigid tightening down on the system in 1920, the credit hounds are not tugging particularly strong at the leash. The big tug is expected when that rose-flush, which is now hovering about the horizon, begins to reach up into the sky, for it is then that all manner of industrial and commercial activity will cry to itself “The hour has struck,” and will immediately dash off to the nearest branch bank for a loan. And the Credit Man says: “We will treat them exactly as we are doing to-day and exactly as we have done in the past; which is no different from the manner in which we meet each individual farmer who comes before us.”
_ Still, in spite of that calm statement, the situation is not a simple one, for the duties of the Credit Man are manifold.
As an example, the problem was put up to the Credit Man to state precisely how he would handle a definite applicant for a definite amount of credit in some wellknown industry; and, for the sake of convenience, that of the automobile business was chosen. Woud he, or would he not, extend a fifty thousand dollar credit to a gentleman, or a group of gentlemen who might walk in upon him. and remark: “The factory is up, the machinery is in, the hands are hired, but we slipped a little in our reckoning. What we need is fifty thousand to lay the raw material down in the back-yard. After that, the first car will be on sale within six months. That is quick turn-over, and we are not asking a loan on capital expenditure, for we know we wouldn’t get it anyway. Looks good, doesn’t it?”
T~^ID IT look good? Mr. Credit’Man stiffened in his chair, and thrust both hands forward, palms outward.
• No, he was not prejudiced either for or
against any particular industry in the whole of Canada; for they were all grist which came to the same mill. No, he wasn't there to even up some old score or anything like that on the Smithson Corporation who brought the application before him. As a matter of fact, he had known the Smithson Brothers for a number of years; he had always found them clear-white for honesty and integrity; they were slaves on the job, not afraid to put the aoee on the emery stone, and it was only by sheer business persistence and straightforwardness that they had succeeded, t hrough the past years, in amassing sufficient funds to put up that automobile factory and get the machinery in. Turn the deal around and look at it from all directions. Now where is the loophole which the Credit ’»lan found in the Smithson proposition? You have on the one hand honesty, intelligence, industry, integrity, grit, courage, and all the synonyms which the language provides to indicate that the bank would get the squarest of square deals, and all the Smithson Brothers ask is a mere little fifty thousand to stand up beside their two-hundred thousand dollar factory. What is missing?
The answer of the Credit Man is: Business Judgment. At this particular moment the time is not ripe for a new automobile factory in the whole of Canada, on top of those which are already here. There is so little room for a new factory of that type that if the promoters cannot see themselves financed for some time to come, they had better put up the shutters; but their case is merely cited to show what a long mind the Credit Man must have, and to show as well that sterling character, experience and success are not the only qualifications which the banks scan before they reach out credit at a time like this. Again, some florid-cheeked individual might come along with the cutest little string of cigarette-smoking movieactresses that you ever saw, and explain that the stage was all set for floating a producing company in Canada, and all that was needed was ten thousand to buy the film. Would he get it? The Credit Man answers:
“Naturally, we would treat that application in the same way that we are compelled to treat all applications, particularly at a time like this when all credits are scanned most rigidly. First of all, banks do not extend credit on capital account; but they do give it, for instance, on an industry’s raw produce which could be turned over quickly to permit a speedy return of the credit. Now, as to the motion-picture man. It would be necessary, of course, to satisfy ourselves that the money was not wanted as capital; we would want to be satisfied as to the man’s character—a matter which could be cleared up by any other bank with which he had had dealings, either in Canada or the United States, by our branch managers, or by the managers of some other bank’s branches. Next, if we had never had any dealings with the man before, it would be necessary to make inquiries as to his business experience; then, if we were convinced that the man was honest and capable, he would ordinarily get his credit, except—there is that point of Business Judgment. Would it be wise at this moment to start the production of motion pictures in Canada with the aim of competing with the American? It would not— soothe^man would go away without his
No Business Stifler
C'ROM all of which it will be seen just how long and how strong is the long arm of the Credit Man. He is, in so many words, the envoy of Fate sitting up there on his throne, lopping off ambition here and encouraging it there; still, he modestly declares that by no possible adjustment of facts, could he be regarded as the cause of prosperity or its reverse. He admits that by the magic wave of his hand he can often hold back the young business colts who are keen to plunge into the race, and he admits likewise that he could slip the halter and let them go, if he saw fit. Yet he maintains that he is not the king-pin which stifles business or forces it on. He is, in his own words, the product of business conditions rather than the producer of them; and this is the way he figures it
“For instance, a big Iron Man might come to us and ask for a hundred thousand credit. He has his smelter clear—a fact which we would know—but he wants
the money to bring in the'raw ore from the United States to get the smelter going again. We refuse credit, on sheer business grounds only. Character atid reliability have nothing to do with this case. Why do we refuse? You say that by refusing that man credit we are holding back the iron and steel business, that we are preventing some hundreds of men getting employment, and that we are refraining from giving the push essential to restore prosperity. We say that you are all wrong. For we have been obliged to ask ourselves this question: Suppose we did advance
Mr. Iron Man his hundred thousand, what are our chances of getting it back again? We get it back only in case he smelts his raw ore, rolls it into rails or boiler plate or something like that, and disposes of it on the market. If it lies in the yards unsold, our money is tied up, and the Iron Man is worse off than he was before, because of that extra debt saddled about his neck. So we look at the market, we discover that the naval holiday has left the industry staggering, we find that the Canadian Government is now the big wholesaler for iron and steel plate which is still being piled into its back yard owing to war contracts; so we say, ‘Hands off’. And yet you say that we hold back prosperity.
“Not so. Credit to the Iron Man under such conditions might create a temporary boom in one direction, but it would be only artificial, and in the lack of markets, the inevitable result would be a slump back into a worse position than the man occupied before, while we would have just that extra hundred thousand tied up and unavailable for the real boom when it did come. No, we did not produce the general condition of affairs which robbed the Iron Man of his market; for that was brought about by world affairs far beyond our control. So we are, of course, but the product of prosperity or depression, and not the producers of it.”
How About Getting It Back
IN THAT manner, the Credit Man points out, he is compelled to scan the world situation when any industry, even from as far distant as Oshkosh, asks for a little two thousand dollars to buy hides to keep the town shoe factory going. The big point upon which the Credit Man must satisfy himself is this: If I advance
money to this man to buy raw materials to be manufactured in his plant, is there a reasonable chance that he is going to have a market for the finished product? It does not matter whether the market is at home or abroad, the point is just the same. For every time the Credit Man parts with the hundred dollars which you slipped through the wicket to the teller, his problem is: Just how fast can I get that back?
That doubtless is the reason why some men gain the impression that when they meet with a turn-down they are being discriminated against. It is not that at all. It is simply that the neighbor, who gets the credit, is assured of a market for his produce, while the other man, in being refused, has been sized up as too much of a gambler’s chance.
Still, the Credit Man does admit that he must turn down the small man much oftener than he does the big man; but the explanation acompanying that is the statement that as a rule the big man has more experience and business judgment than the small man, and accordingly knows just when not to ask for credit. The big business man, having his eye constantly on Dominion or world-wide affairs, knows far better than the small man just when the time is ripe to step into the bank and get the credit he needs; and because of that, the small man has been known to go away with a grouch, claiming that he gets the rough shoulder every time. The same thing applied back in 1920, according to the Credit Man. It was then that the purse strings were tightened up most rigidly, that many a man was told, in so many words: “You have gone the limit in
expanding that business. Just ease up. Your credit is reduced.” Through that period it was the small man who had to be dragged to his knees by the Credit Man, for the big man was already there of his own accord.
“The big industries could foresee the need for liquidation,” is the way the Credit Man put it, “and they started it of their own accord. The smaller men had to be brought to their senses by having their credit cut. It rather riled them back in 1920, but there are a good many of them
drifting in on us these days to tell us just how thankful they are that we could see farther into the future than they could. Credit? Yes, it is a queer sort of business. How do I work out each case? Sometimes 1 don’t quite know myself. It seems to me that I am just like a big sponge which has been absorbing facts and conditions for a quarter of a century; so when a man comes along and asks for credit, all I have to do is squeeze myself, and there seems to be something which tells me whether it
would be wise just now, in view of world or Dominion conditions to let such-andsuch a man go ahead, or whether he should he curbed. And the strange part of it is that we mostly hit it on the head. Errors? Of course, we’re human. But the hardest end of it is to judge human nature. One can always size up business conditions and prospects with some degree of accuracy, but you can’t always tell just how honest is a man by the way he looks you straight in the eye.”