As you would expect in an industry that stresses lending, our contest for the best top 10 list of warnings to lending officers hit home.

The contest announcement on Feb. 27 included my own list, but our respondents provided much more sage advice than I did.

For instance, Joseph Dorovich of Cherry Hill, N.J., presented 18 solid warning signs of repayment trouble ahead. Here are some of them:

*You see thick dust on stored inventory while being given a tour. Buildings and grounds show signs of neglect.

*You overhear a company official telling a supplier a post-dated check is in the mail.

*The customer always wants to meet at your premises.

*The customer doesn't have any international business accounts or foreign operations but asks for international wire transfer service.

*When you call the company, you get voice mail.

*The customers mailing address changes to a post office box number.

*During an audit, you learn that the company, which has no offices or customers outside its trade area, has checking accounts with banks outside the area.

*While the company is negotiating a loan with you, it is making arrangements to repay loans from its officers and family members.

And Kathleen Lewek, a banking consultant based in Culver City, Calif., offered this suggestion: "Beware of the 'greed factor' - both the borrower's and your own."

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Here's a top 10 list that is particularly good, from Richard N. Latrenta of Interchange State Bank, Saddle Brook, N.J.:

10) All attorneys are deal killers.

9) Make sure you obtain all prudent terms and conditions before closing the loan. They are very hard to negotiate once the loan is in workout.

8) Be wary of a borrower who questions your bank's policy on overdrafts and uncollected funds.

7) When negotiating the rate on a loan, lenders should remember that their banks are not nonprofit organizations.

6) Never base your entire loan decision on the borrower's projections. They are what they are: an owner's belief about his or her talent and prospects for success. Nobody ever applies for a business loan showing inadequate cash flow and the possibility of default.

5) You can never have too much collateral.

4) Get the personal guarantee of the business owner(s) on every business loan.

3) Every threat is an opportunity, and every opportunity is a threat.

2) What God giveth in interest, he taketh away in principal.

1) Cash is king.

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Another good list came in from Shepherd G. Pryor 4th of Chicago:

10) While you are adding all that complexity to your loan structure, remember that loans are not like space stations; they must exist on Earth and be able to withstand gravity.

9) If you are being complimented because you "understand the borrower's business," you probably don't.

8) You can never look back proudly on the words "we can afford to add risk to this portfolio."

7) Just because you have only one deal to look at doesn't mean you have to take it.

6) Remember that you have to live long enough to receive the principal. Keep the term of the loan within reasonable time horizons.

5) As you sit around the bargaining table in a complex deal, make sure you can define what each party stands to gain from the transaction.

4) No, your bonus will not be big enough to justify doing it.

3) A good numbers guy is like a biblical scholar; he can prove anything.

2) Entrepreneurs have no vagus nerve (the one that slows down some organs); the banker must serve that function.

1) Never think that a borrower can't fool you just because he is dumber than you.

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But our winning entry comes from Kenneth Chin and Andrew L. Herz of Richards & O'Neil in New York. They broke the rules somewhat by offering more than 10 suggestions, but we forgave them.

"Like lawyers everywhere, we could not resist saying in 20 items what otherwise could have been said in 10," they said.

Their warnings:

20) Beware of the borrower who prides himself on breaking all the rules.

19) When the borrower focuses upon the consequences of a default rather than his covenants in the loan documents, acknowledge the message he is sending you.

18) Avoid the loan whose repayment depends upon the "bigger fool" theory - an intended public offering, foreign investors, etc.

17) When a new prospect says he was referred by one of your good customers, be sure to check him out with the customer.

16) Recognize that entrepreneurs are a different breed - their optimism fuels their confidence but does not ensure repayment.

15) Ask the obvious question: "How did you get to where you are today?"

14) Beware of borrowers who quote from "Winning Through Intimidation," "Buying Real Estate With No Money Down," or "The Art of the Deal."

13) Question a borrower's assumption that unit sales prices will increase faster than costs.

12) When an elementary school acquaintance resurfaces after 20 years as your long-lost friend, expect the worst.

11) If the customer's largest account is his father-in-law, ask more questions.

10) Realize that a charming personality doesn't always translate into a good credit.

9) Make sure the borrower understands the effects of the compounding of interest.

8) Recognize the true cost to your bank of the lavish entertainment provided to you by a prospective borrower.

7) When checking out a reference, don't just accept a testimonial; know what questions you want to ask and listen carefully for what isn't said.

6) If the choice of your bank by the potential customer seems illogical, it probably is.

5) Watch out for pro forma financial statements covering a year that has already ended.

4) When a loan has a problem, don't expect it to get better if you ignore it.

3) Underlying every unique, innovative loan structure is a unique, innovative test.

2) Even if you have the toughest legal documents, don't rely on the courts to work well or quickly.

1) Beware the borrower who is disdainful of professionals; remember, you are one!

Well, I never thought we would have two lawyers as co-presidents of Schmidlap National Bank, but live and learn.

Mr. Nadler is a contributing editor of the American Banker and professor of finance at Rutgers University Graduate School of Management.

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