OPINION: Why No Bank Wants To Lend To You, By Anayo Nwosu

Daily I see banks' customers feel disappointed with their bank's refusal to lend money to them. They believe that their loan requests should have been approved.

But sadly, many banks' customers do not know why their banks say "no" to their facility applications.

A banker is bound to say "no" to your loan application if in his judgement, there is no assured repayment source or a fall back, like a quick realizable or sellable collateral, if your repayment projections fail.

I had once turned down a loan facility whereby a customer needed a loan and was ready to pledge his fixed deposit as a collateral. The fixed deposit was a saved amount he planned to use to buy a house at a future date, which he didn't want to use to finance a trade transaction. He would rather borrow finance trade transaction.

You may say that there was no risk in a cash-collateral loan because I could collapse the fixed deposit or cash collateral into the customer's loan account to extinguish my bank's exposure in case the business failed.

No!

I turned down the loan application because in my judgement, the underlying transaction would not be profitable to customer. He would lose money if I had approved the loan and would feel back later.

The bank might recover its loan but not the customer.

Many bankers are trained to calculate the profitability of the business you want to use the loan to do. They are expected to ascertain if the business can generate the expected revenues to retain the loan, pay bank charges and return reasonable profit to you.

It is important to realize that bankers are trained to take measured risks and not to dream dreams with their customers.

To complicate matters, Central Bank of Nigeria has criminalized lending a kobo to any customer without collateral, no matter how short tenored. Therefore, when you ask your banker to give you a loan without collateral, you are asking him to commit a crime.

Do you know that any unpaid loan is deducted from the bank's profit and if the profit is not enough, it is deducted from the capital of the bank?

Many bad unrecoverable loans make it impossible for your bank to honour withdrawal requests from innocent depositors.

All bank loans are made from a portion of total deposits of bank customers that include pensioners and other vulnerable savers.

Unlike in marriage where virginity is a virtue, in bank borrowing, inexperience in taking and repaying loans counts against a loan applicant.

Good credit history is an asset. Experience in taking, repaying and taking again are a virtue.

Reputation of a borrower is also very key.

A mere report of non-payment of children's school fees is a red flag.

Also, a bad word from your suppliers or trade creditors can negatively affect your chances of getting approval for your credit request.

First time borrowers could still be successful in securing loans from a bank only if the purpose of the loan is bankable, with clear repayment source and a collateral.

If your turnover is not in excess of 120% of the overdraft facility you need, do not bother to approach the bank for loan. Every lender is taught to so understand.

Your turnover indicates the strength of your existing cashflows. This is evident in your bank account statements. Cash not passed through your bank is discounted as unreliable. Therefore, always ensure that your all revenues pass through your bank account before appropriation for proper tracking of cash flows.

Your banker will still calculate the additional cashflows attributable to your proposed loan, playing down optimism (known as sensitivity tests) to determine the profitability of your business and the returns to the bank.

Every bank has a minimum profit they must make from every loan it grants otherwise no deal.

Not that banks buy and sell money. They pay interest to depositors and charge a margin on loans.

Whenever your loan request is turned down by a bank, be bold to ask your banker to tell you the real reasons why your application was turned.

Outside the bank, I would never lend money to  anyone who I suspect cannot pay. I would rather give the person the money or part of it for charity.  However, the amount must be that which I can afford to lose.