The Nature of Debt: A Cautionary Tale
Debt is a curious beast. You’d think, as the lender, you’d hold the reins of power. But no—more often than not, the debtor holds the leverage. As Donald Trump once said, “If you owe the bank a million dollars, you’re in trouble. If you owe the bank a hundred million, the bank’s in trouble.” And so it goes, whether it’s business, personal loans, or even favors among friends and family.
Here’s the hard-earned wisdom I’ve gleaned from years of experience—lessons that cost me more than I care to admit:
Lessons from Lending to Friends and Family
- It’s Not Business, It’s Charity:
Lending money to friends or family rarely ends in full repayment. Whether they mean to or not, life happens—car accidents, job losses, hospital bills—and suddenly, the money is gone, never to return.
“If you lend money to loved ones, consider it a gift,” goes the old adage, and it’s true. If you’re not prepared to let it go, don’t lend it in the first place. - Favors Are Another Kind of Debt:
Beyond money, people can owe you time, effort, or support. But even then, the dynamics can sour. When you help someone, be prepared for gratitude to fade—and perhaps even resentment to take its place.
Business Debt: The Double-Edged Sword
- Accounts Receivable—A Polite Name for Trouble:
In business, unpaid invoices are common. Even with clear terms like “Net 30,” clients often stall payments. Buyer’s remorse can set in—they feel they overpaid and find ways to justify not paying the rest. - The Reality of Leverage:
If your largest client, who represents 50% of your revenue, decides not to pay in full, what can you do? Sue them? Maybe, but at what cost? Sometimes, keeping the relationship is more valuable than collecting the debt.
As one attorney told me, “You’ll spend more suing them than you’ll recover. Is it worth it?” - Financing Receivables:
Companies like car dealerships and homebuilders solve this by offloading their receivables to a third party. Once the loan belongs to someone else, collecting becomes someone else’s problem.
When Debt Becomes Leverage
- Suppliers Can Leverage You:
Debt isn’t always about money owed—it’s also about dependency. Take NVIDIA, for example, squeezing a vendor with higher prices and stricter terms. The vendor couldn’t fight back; they depended too much on NVIDIA to survive.
“Too big to fail” can also mean “too big to fight.”
The Takeaways: A Debt Survival Guide
- In Business:
- Always have a mechanism to collect debt, whether that’s factoring, liens, or legal action. Without it, you’re not running a business—you’re running a charity.
- Don’t spoil clients by being lenient. If they think they can get away without paying, they will.
- Diversify your client base. Don’t let one customer hold all the cards.
- In Personal Life:
- Never lend money or favors expecting full repayment. Consider it a gift, and you won’t be disappointed.
- Understand that relationships, not money, are often the real cost of lending.
- In General:
- Debt is leverage. But don’t be fooled into thinking you always hold it. The bigger the debt, the less control you may have.
Final Word: Charity or Business?
If you’re going to lend—whether it’s money, time, or favors—you must decide upfront: Are you running a charity, or are you running a business? Without a flawless way to collect, the answer may already be made for you.
Debt isn’t just about numbers on a ledger—it’s about power, relationships, and human nature. Handle it carefully, or it’ll handle you.
Personal References and Stories Behind the Lessons
- Lending to Co-Workers
When I was younger, I thought lending money to co-workers could be a win-win—helping them while earning a little extra. I loaned amounts ranging from $5 to $3,000, helping one person bring his family to the U.S., another with a house down payment, and another with dental work.- The result? None, except the family man, repaid me fully. One co-worker even outright refused, claiming illness after he left the company. These experiences taught me that lending to friends often turns them into enemies.
- The $8,000 Invoice
During the S&L crisis, I worked on a project moving computer equipment for $18,000. Despite an agreement, the client simply refused to pay the final $8,000, citing budget constraints. My attorney asked, “Is it worth jeopardizing a $300,000 annual relationship over this?” The answer was no. I swallowed the loss.- Lesson learned: In business, sometimes the cost of enforcing payment is greater than the debt itself.
- The Attorney Who Refused to Pay
A lawyer once stiffed me on a $5,000 payment. I had an ace up my sleeve—when he didn’t pay, his computer mysteriously stopped working. When he threatened to sue me, I pointed out it would cost him more to litigate than to pay. He eventually caved. - The United States Postal Service
Even a large, reliable customer like the USPS tried to dodge payment at one point. They eventually paid because they needed my services again.- Takeaway: Sometimes leverage works both ways. A vendor with something you need has a way of making you pay.
- NVIDIA and Vendor Leverage
NVIDIA once forced a vendor to accept unfavorable terms, essentially taking hidden revenues worth hundreds of millions. The vendor had no choice but to comply because their survival depended on NVIDIA.- This highlights how leverage isn’t always about money owed—it’s about dependency.
Why These Stories Matter
Each of these anecdotes underscores the central theme: Debt is leverage, but who holds the leverage often depends on context. Whether dealing with friends, clients, or suppliers, the dynamics of power shift based on relationships, dependencies, and your ability to enforce repayment.
These experiences shaped my understanding of debt—not just as a financial concept, but as a tool that can build or break relationships.
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