Full recourse loans

Full recourse loans

Bankers want lots of security.  They aren’t in the risk business.  They’re more than willing to loan a business money but they want to be darn sure they can get it back–with interest.  So, they take as security (collateral) a business’s inventory, its property, its accounts receivable, its equity and when all that isn’t enough, they ask the owners to personally pledge everything they own.  Even today, I have personally pledged all my personal assets to secure Learfield’s debts.  These debts are called “full recourse loans” in the banking business. And our pledge of personal assets is called a “personal guaranty”.

When we first started, we’d never been able to make a go of it without the personal guaranties of Buell, Jack, George and Jim.  Derry and I simply didn’t have personal wealth.  But these guys did.  And bankers–being as they are–also required the wives to sign as guarantors.  That makes getting to the money in the case of a default much easier.  Further, each was secured jointly and severely.  That means that the bank can get all of its money from the wealthiest; it doesn’t have to get equal parts from each.  (I know it sounds wrong and it is)  So, you can see that we appreciate these guys, and their wives, for their willingness to jump in and to sign on to this debt.  Without them, we’d never made it.

Another funny story:  On a routine note renewal, I circulated the guaranty form for each of the six of us and our wives to sign.  I had everyone’s signature but for Jack and Lela Murphy’s.  So, I called him and drove over to his Columbia office to get them.  After he signed, I explained I also needed Lela’s.  He grunted and ask me to ride with him out to his house.  We pulled up to his beautiful home and I started to get out, but he asked me to stay in the car and wait.  Maybe 30-minutes later he returned, got in, handed me the form, yet unsigned by Lela.  “She won’t sign” was all he said.  And, she never did.  I’d loved to have heard that conversation, wouldn’t you?