24/05/14Banks & Strangers… Would either lend you money?
Now there’s a question….
OK first things first..I’m a Banker. I spent 17 years working for HSBC with a Commercial Management team that looked after businesses with annual turnover up to £50m & those guys wanted to lend money. They would spend hours putting together the information they’d got from a client, using their projections & forecasts, while cross referencing with the banks actual hard data on the accounts held. he or she would then look at the tangible & Intangible assets and put a weighty document together stating reasons why the bank should lend the money & then it was sent to the approvals department, who only know the manager by their previous submissions and whether those submissions are still working or not & the client based solely on the information the bank has on the client, plus the information gathered.
So it was soul destroying for the manager, let alone client when it was rejected, usually because either the bank had no appetite to lend to a particular sector, or it felt the client was unreasonable with its projections, or because it felt the client was overstretching itself. Another big reason-which is my assumption-is that the bank didn’t want to lend on a project that could come back & bite them, causing adverse publicity and share price sufferance.
In fairness, when your going into , or are in a recession, I kind of expect to see ‘reasons why not to lend’ but when we’re bottomed out, or heading for recovery, surely a ‘reasons why to lend’ must be the way….apparently not.
A client of mine recently enquired to his bank (who he’s been with for 20 odd years and have seen him build his business, sell for a highly profitable sum, then start to do it again, but now with some serious money behind him) to see if he could leverage his unencumbered business-which includes freehold property debt free-to pay back directors’ loans. He has assets, he has a track record & it seemed a no brainer (you can see where its going can’t you) he got point blank refused. He asked why & the response was the trading weren’t high enough, to sustain the monthly repayments, even though the business was currently paying the same monthly payment to him, so as to pay back his directors’ loan!!
My client asked when would the bank consider lending & and the answer was basically when you have sufficient cash reserves (despite my client having several times that amount in an account-he just wants to tidy up, sell the asset & go again). My client tongue-in-cheek said ‘I suppose the suitable level, would be the amount I’m looking to borrow’ & they said..’Yes’. We therefore deduced that this banks’ policy was that it will lend, providing you have exactly the same amount in your business account!!-to anyone reading this saying ‘yeah-why are you blogging about this’ I apologise. I left banking nearly 3yrs ago & do not recall having these discussions..the old saying of ‘A ship is safe in the harbour, but that’s not where it’s meant to be’ could be used in the banking world of today-if you don’t lend, you’ll never have a bad debt.
& so to strangers…I read with amazement that the ‘Silver pound’ is going to strangers…companies that have set themselves up as mini dragons den if you like, invite people with money to send it to them, so they can lend it back out to people who have an idea or lucrative business deal, but can’t get finance (& you wondered if there was a link..shame on you!) so, money is given and an eye goggling double digit return is made on a ‘let the buyer beware’ basis if it works out…in the words of another Victor…”I don’t believe it!” I’m seeing people invest in Storage warehouse units, rooms in dementia clinics & still people giving their personal details to ‘boiler room’ scams.
There is a halfway house between cash in an account and peer to peer lending, some that come with 90% protection to your initial investment under the FSCS (Financial Services Compensation Scheme), some that come with tax relief (& not just pensions) Once again the drive for a return on investment, suddenly distorts the potential risks & people just walk in with out considering there may be a downside.
I’m no prude, but I would-as I’ve said previous times here-proceed with caution & spread funds around.
Finally, reading a post from Money Marketing, talks about how Financial Services has become an option on the Open University in the USA…what wonderful news. I’d love to see it here in the UK for my kids and above..so if they want a mobile phone contract,credit card, store card, student loan, car loan, mortgage, ISA, NISA, JISA, etc they go in with some education.
Well that’s me done for a couple of weeks. Hope all is good & remember, if you have a question, or want to chat over anything you’ve seen on my blogs, feel free to contact me at www.business-ifa.co.uk all my contact details are there.
Thanks for reading,