How to win financing from a bank without any hurdles – 1

Following the publication of my previous articles on the diversion of funds, I received comments from some readers, who pointed out that sometimes bank employees mislead their customers into preparing bogus financing proposals. These proposals are prepared for the sake of securing funds from banks, which end up being diverted, leading to problems which could have been avoided in the first place.

I cannot refute these arguments as they can be true when you have bank officers who create networks of underhand dealings. In the banking industry, decisions to grant financing facilities are supposed to involve various independent teams.

The business team recruits and engages customers; the credit team, which in most cases does not meet customers in person, does the analysis and, in certain situations, there is a risk department whose officers visit customers and conduct their own independent analyses and provide recommendations.

Financing approvals, depending on their size, are given by people other than those who recruit customers and in some cases involve the CEO or management credit committee. For really big facilities, decisions are usually made by the board. These hierarchies must ensure clarity and reliability of information presented. All levels have an option to visit customers when necessary.

The business team, in order to convince all these individuals and committees, sometimes resorts to preparing false information and even involves all these individuals and the committees in fraud. Any bank involved in these kinds of unjustifiable approvals will end up being exposed by having higher non-performing financing (NPF) ratios, which reflect the extent to which customers don’t repay their loans.

Based on my experience, when a customer follows procedures I will detail in this series, it is most likely they will secure financing from a commercial bank without any hurdles unless, of course, that particular bank has crooked employees in its ranks.

It is important to understand that commercial banks get cash for financing from two sources – deposits from customers and shareholders through their direct investment and ploughing back profits that are not distributed among shareholders as dividends. Although shareholders bring cash into banks, the major source of funds is depositors.

The most important task of a bank’s management is to safeguard this cash. It is therefore crucial for the management to make sure that any cash issued as financing is disbursed only after due diligence to ensure that the recipients will repay credit extended to them in full.

Cash sourced from depositors must be readily available to be withdrawn by them any time they want their money back. This is also another aspect that bankers consider when offering financing. Customers granted financing facilities must be able to repay them because failure to do so will render banks unable to cater to depositors’ needs.

With that background we can now go back to the subject matter of this series. Three basic factors are necessary. Be an honest and transparent partner of a bank since these are the most important factors that bankers consider before granting financing.

Being a partner of a bank is an important aspect when you want to win financing. Be a partner by opening an account with a bank. The account opened must be active and the customer must ensure that all their business proceeds are deposited into the account and all payments are done through it.

Most banks require accounts to be active for at least six months as proof of reliable cash flow. More than six months’ cash flow is desirable.

In the next instalment of this series I will elaborate further on other features that make a customer a good partner of a bank. I will also further explore other factors of being honest and transparent. Stay tuned.

Dr Muhsin Salim Masoud is a seasoned banker and academic, who has also served as managing director of the People’s Bank of Zanzibar and Amana Bank. [email protected]