The post we dedicated to our latest experience with banks led to many reactions and –this is also an interesting byproduct- to a peak in terms of visits. We’d like to thank here the readers who retweeted or shared our article on their Facebook wall.
Yet, among the many reactions I got, one led me to think deeper about the role of banks. This reaction originated from one of our fellow readers whom I met this week and with whom I had a lengthy and highly interesting interaction.
Banks are still giving loans, but …
I wrote:
“They [the banks] analyze your personal assets (and how they can be used to reduce the bank’s risk to zero) rather the very content of your project. In other words if you don’t have a flawless track of records and personal assets, chances are high that you won’t get a loan.”
My fellow reader objected that the message I was conveying was negative and that would-be entrepreneurs still can get loans from banks. Yet he agreed with me that even with an excellent project, if you have no prior expertise and little money or few assets, chances are indeed near to zero. But interestingly enough we deepened our discussion on the criteria used by banks to accept or refuse a loan.
How many of the companies actually financed by banks do indeed default?
When banks give loans, their unique criteria to judge a project should be the risk for the debtor to default on its debt. As a consequence banks should monitor the default rate on the loans granted and use this metrics to determine, whether or not, their criteria are right.
For example, if none of the debtors have defaulted on their debt, this should be used by banks as a signal for them to open up their criteria. Actually loans for companies are not very expensive in Belgium and Belgian banks could very well allow more risky projects for a premium. Some of them may default but I’m pretty sure that banks would be better-off in the end.
Do banks really want to do business?
The suggestion above will never become true if banks do not change their attitudes. I have explained here my attempts to find a new bank. Well, 6 weeks after having sent my initial inquiry, believe it or not, not one bank has tried to contact me. It’s like if they were not interested to acquire customers. This situation, although surrealistic for a for-profits organization, did not surprise my reader. He had also noticed this shift in attitude over the last years and a tendency for bankers to remain within their comfort zone and not even trying to generate revenues for their organization.
In conclusion
It is this very attitude that will prevail and that will eventually prevent banks from changing their admission criteria. We have entered a consolidation phase where banks are trying to protect their existing revenues and cut on costs rather than convincing customers of their competitors. The same apply for the three big telco operators in Belgium. Don’t steal customers from each other seems to be an unofficial motto; don’t scratch my back and I won’t scratch yours.
Yet there is a little bit of hope if you know the right person. Bankers remain indeed human beings are acquaintances may be leveraged to remove hurdles from your way. I guess I’ll have to explain you in an upcoming post how to find the person who will open the doors for you. To be continued. In the meantime, if you need advices on your business plan or on your financial plan, don’t hesitate to get in touch with us. We’ll be more than happy to help yet another entrepreneurs make their dreams come true.
Posted in Entrepreneurship.
