Why Most Banks Would Not Lend To You, By Anayo M. Nwosu

It is common to see many bank customers feel disappointed whenever their banks turn down their loan requests. They believe that their loan requests should have been approved.

Sadly, many of these customers do not know why bank after bank say "no" to their loan 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 repayment projections fail.

I had once turned down a loan facility whereby a customer wanted to use his fixed deposit as the collateral or security. You may say that there was no risk in such proposal as I could collapse the fixed deposit to extinguish the loan if the customer fails to pay.

No! Far from it.

I turned down the loan application because the underlying transaction the customer planned to do with the loan would not be profitable to customer. He would lose money and feel bad later and possibly blame any other person including me for his failure. I needed to protect the customer against his wish.

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, pay bank charges and return reasonable profit to you.

To complicate matters Central Bank of Nigeria has criminalized lending a kobo to any customer without collateral no matter how short tenored the transaction cycle is.

Therefore, whenever you ask your banker to give you a loan without collateral, you are asking him to commit crime.

Do you know that banks are required to deduct any unpaid loan from their profit and if the profit is not enough, the bad loans
are deducted from the capital of the bank?

Accumulated bad loans will make it impossible for your bank to honour withdrawal requests from innocent depositors or to pay dividends to shareholders. Huge unpaid loans can also lead to bank failure.

Loans given to bank customers are made from a portion of total deposits of bank customers which include pensioners and other small savers. So, everybody suffers when someone has not repaid his bank loan.

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

Hence “doing it before” by the loan applicant is a big plus during the analysis of his/her loan application. Good credit history is an asset.

Reputation of a borrower is key.

A mere report of non payment of children school fees is a red flag. Bad word from your suppliers or trade creditors will affect your chances of accessing your credit request.

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

If your turnover is not excess of 120% of the overdraft facility you need, do not bother. Every lender is taught to lend to a customer who shows a proof of stead cashflows. Loans are paid with cash not with the honest intentions of the borrower.

Bankers are taught not to lend money to overly spiritual customers. Faith, prayer and holiness are never considered in arriving at whether to grant loan or not.

Customers who keep saying the following: “I bless God”, “By special grace of God”, “The Lord would provide the source of repayment”, “God is the manager of our business”, etc score low in assessment of an experienced lender.

Your turnover as could be seen in your account statement, indicates the strength of your existing cashflows. The banker will still calculate the additional cashflows attributable to your proposed loan, playing down optimism 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 even now when raising deposits is much harder as banks compete with FG in getting deposits from bank customers. Some bank customers prefer Treasury Bills and various FG bonds to fixed deposits in banks.

And the fact that banks can’t lend up to 50% of customers’ deposits, the banks are now so choosy in picking the transactions that would yield higher returns. The total amount of loans banks are allowed to lend is still subject to the individual bank’s capital adequacy ratios.

No matter how vigilant any bank might be, some customers working alone or in connivance with unprofessional bank staff still game the lend process.

The untainted fact is that borrowing from a bank is not a day’s journey.

Accessing a bank loan takes preparation that must prove the lender’s character, capacity, capability to use the loan and to repay, a proof that the business or economic conditions are conducive to loan performance and lender’s ability to provide a collateral the bank can easily dispose off if the lender fails to repay the loan.

Whenever your loan request is turned down by your bank, be bold to ask the banker to tell you the real reasons why your application was turned down. It would surely help you to prepare better for future loan applications.