Banks are not ant business, you just need to understand how they work and what they want. First off a depositors money becomes a bankers liability, they need to loan it out to make money, they get profits between the loan interest and the interest paid to the depositor, its pretty simple, back in the 80's where depositors were paid at or over 15% and banks charged 15-18% they made about 3% profit and when the loans were defaulted on, banks didn't have the margins to stay in the profit end of the world and went under, today they loan out money for5-12% and pay depositors about 1% or less, not hard to do the math on that, but i'll help you out, thats more than 5-11 times the costs or I'll give you a dollar you give me 5-11 back, not bad huh? Now real-estate loans are less, the land or buildings go nowhere and don't get stolen, so the risk is less, thus lower interest costs on those loans verses iron or machines.
They want collateral to cover the loan, or if you go broke they get paid in full and then some, no worries, like when you deposit 11 dollars and take one out and spend it, you've still got 10 left and don't worry, it didn't go anywhere and its safe, the higher the risk the higher the interest rate, or in your terms those that have the least and have no money and have the least ability to repay the loan pay the most, those that don't need the money and don't care to borrow it in the fist place and can repay it at any time get the best deals, great isn't it.................. now insert your name in the equation, hint its in the first part not the second part.
Next they want a good plan, this and they've never actually run a business of their own so they need your intentions on paper so they don't get lost, and this part is a direct quote from a former bank director, they are not good at managing or running anything and never have and don't know how to turn a bucks profit if it involves physical work, that again is a direct quote I'll never forget, from the same director. Now the intentions need good plan, where theres guaranteed income coming in, like they get a monthly paycheck, anything else gets fuzzy for them because of lack of knowledge or experience in your world. Now your plan is hashed over by several bankers, cause one doesn't know anything about it so they run it by others that know less, again a quote from the director I knew. Next they look to see who else has applied for money to borrow and see whats available, then they draw from the crystal ball and toss up the coin and see if your qualified for the loan, more than one need to agree they don't know much about it and say either yes or no, at the same time they look at your assets, if you have something, they'll loan you more than you need, if not, your not going to get much if anything, next they look to see if an idiot has been willing to co sign the note for you, this gives a bonus for you since they now have another idiot to get repaid from when you go broke, provided he's an idiot with something not already spoken for by another bank and its of value, your wife's sister for a sex slave isn't a good asset, maybe a good piece of *ss but worthless for collateral, her car maybe provided its paid off and worth something.
They then look at your intentions to repay the loan, here's not the time to state "someday" but rather monthly or yearly payments would be preferred, they then look at what you've got to do the repaying with, if anything, like income of any sort, here's where your financial statement comes in and your taxes, now they look at things like depreciation and how much you made in the past and calculate if you can survive and live on what you made last year or the last two years, here its usually law they have this, someone higher up realized they are not the sharpest knife in the drawer so they require them to have this on file in case someone wants to come from the government and check up on them to see their doing their job, in case you've been asleep the last few years with the liar loans and bogus house loans, apparently someone hasn't been doing that job, either at the banks or with the examiners who watch them, bear this in mind how smart they all are and money wise, you'll need it later in life.
Next comes the loan or the refusal and either you've got it or not, if not, consider yourself lucky to dodge that bullet and walk away uninjured, if you get it, then you've got a partner in the form of a banker and he's the slowest thinking one in your business now, also something to remember for later reference. And you get to answer any questions they have, like what color machine did you buy, those type of things, but they will take pictures to help them remember these things to have on file and file a lean on your machine so you can't sell it without them finding out. Now for the repayments, you get to go make those payments and get to answer questions he may have for you at these times so be prepared. Now they can indeed call in your loan at any time if your not only behind on payments but if the bank examiners deem your a high risk loan, those guys that watched over the make sure bankers didn't break any laws and the loans they made were solid loans, yea those guys, so all in all your in good hands, being watched over by the smartest and brightest colleges have to offer being supervised by those that couldn't figure out how the liar loans worked in the fist place and above all the single most important part, when they get fired as a banker, the working sector wants nothing to do with them because they are not qualified to do anything worthwhile, another direct quote from that bank director friend of mine. So now that we went over banking 101 for dummies, aren't you glad you don't qualify most of the time. Sorry to offend bankers everywhere but any time i can poke some fun at them I can't resist.
Now to be serious somewhat, always try to be upfront and honest with them, don't lie to them, and expect the same treatment in return from them. Know your business and how it works and its profit capability and keep an eye on costs, 90% of the loans made to the beginner are made on the person, not the business, they judge you as person and weight that into the equation, put on a suit and tie to deal with them, your not only representing yourself but your business, know what your talking about at all times and don't blow smoke up someone's *ss with hype you can't deliver. Shop around for a good deal and someone you want to deal with, they are in the market to loan money, they can negotiate about anything if they want to, use one verses another to compare rates and collateral needed by each, there is a considerable difference between banks and their policies for collateral. Look for one that somewhat understands your business, not many do, I try to deal with more than one at any given time and ask about deals they are willing to give and I'll pay off a loan and go to another bank at any time if they are a better deal and place to do business with.
They are then a partner in your business and use them as such, if you have a customer who your not sure your going to get paid from, ask the banker to do the behind the scenes work to find out for you, they can do anything they want, its after all their money you might get scammed out of and should be willing to help you out with advice, if not hunt elsewhere for one that does. Learn how money works in business and things like return on investment and profitability and also debt to asset ratios, things like that, you don't need to be a rocket scientist to do a good job of understanding how banking works, if your to survive in any business you need to know at least the basics, bankers are not to be feared or a overlord over you, if they are look for the next one, bank policies change all the time so one minute they might be a good partner the next time not so good, its just life. Keep them informed as to whats going on with your business, don't be a stranger in the bank you borrowed money from, let them know about your intentions and what your thinking to do in the future, make them a part of it, keep it business related at all times, and never do business with relatives or family if they are in the banking industry and gleam as much information from them you can, ask questions if you don't know or understand and never sign anything unless you read every word, ask for explanations if needed what things mean, there is no disgrace in this on your part, also don't be overdrawn a lot on your accounts, it makes you look bad and like an idiot who knows nothing. Ask your credit score every year and know what it means, have the bank check for you and find out why it went down and how to prevent it again, see what you can do to get it up higher than it is now. Eliminate credit cards and credit card debt. The wealthiest people in the world have come from modest means and have the most at the end, not the ones with riches and wealth at the start, because they know what it takes to make a dollar and hang onto it longer, another quote from my bank director friend.
