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  • Some common errors and misconceptions

     
     
    • Borrowers are not frank enough. If the bank feels it is not receiving all information, it will wonder why. In any case, banks do not want uncertainty – they want control. Shared knowledge is also beneficial to both parties and enables the bank to be proactive.
    • Applications are not based on adequate ‘homework’, resulting in a poor first impression or outright rejection.
    • Borrowers do not realize how important it is to have quality independently audited financial statements (‘financials’), delivered by reputable auditors.
    • Internal control and reporting systems are inadequate.
    • Transactions work when everyone wishes it – sudden change (weather, prices, buyer turns ‘nasty’, politics) can alter this and result in ‘blameless’ default.
    • It does not really help a bank to become the owner of the borrower’s stocks. If these have to be sold off at a loss (10%–20% is not unusual) it may take years of new lending to recoup the money lost.
    • The local legal system may make the realization of collateral or debt recovery a nightmare. If so, local collateral in whatever form, including warehouse receipts, may be (almost) without value.

     

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