Avoiding Loan Rejections

The first thing you should do in order to get a negative responsive from your bank is not to prepare properly for the first meeting. Start the meeting with the words: “I bought some company with an investment contract and I need money. I don’t know how much... enough to build something. I haven’t decided what I want to build yet. I haven’t done any financial calculations or obtained a lease agreement for the land, but I plan to.” Rest assured that in such case even the most favorably­disposed bank manager will immediately turn you down or at the very least explain that you really need to get your act together regarding the necessary documentation.
If on the other hand you want to receive a bank loan you should send some preliminary information about the project prior to the first meeting. In my experience the best outcome was obtained for a project about which the client, requested a list of necessary information and then provided complete information about themselves, the project and even proposed a loan structure.
Returning to the land of “we regret to inform you,” my second piece of advice would be not to provide the bank with all the documents and financial statements they have requested. Instead let the bank guess as to how you arrived at the figures, for example, the basis upon which you developed your business plan and the project’s financial and technical fundamentals. After all, those banks ask for so many documents! Documents about the land lot, construction licenses and payback calculations. You don’t have the staff or the time to do all this. Anyway you know that all you really need to do is reach an agreement with the bank’s senior management and then prepare the documents and crunch the numbers later. However, with this approach after a week or even a month you will be asking some questions like, “When will we get an answer? Why hasn’t anyone examined our project yet?” At that point you will have to go back to the list of documents that you should have provided at the first meeting and in the loan application.
When you want to be turned down it really helps if you don’t provide information about the project’s investors or as we now like to call them “beneficiaries.” The more confusion there is surrounding the project’s owners the more risky it will seem to the bank manager.
Thirdly, never ever provide the bank with any information about the owners of the company or group which is realizing the project. How could it matter that the bank needs a complete understanding of your company, information about previously successfully realized projects and (most importantly) how exactly you intend to repay the loan to the bank? If the project fails then your other assets will suffice. The very best you can hope to achieve with this approach is the very highest possible interest rate awarded only to the riskiest clients. The rate must after all compensate for the risk of default following the failure of your project.
Fourthly, it makes absolutely no sense to use external consultants. Because you know that all consultants just ask for money and then provide standard advice. It doesn’t matter that from a bank’s perspective a well­known consultancy firm with international experience gives you a significant advantage and offers a strong indicator of success. Let’s face it, consultants are just expensive.
Finally, you must find and appoint the cheapest and least well­known construction contractor ­ preferably one with no prior construction experience at all. Then tell the bank immediately and watch as your chance of receiving a loan reduces. No financial institution wants to take on the risk of losing money because the builder just hasn’t built anything.
In summary, if you carefully follow all these recommendations you can rest assured in the knowledge that the bank will not give you any money.

And for those who would like to build something – do the reverse.