I am not going to explain what banks are - if you don't know that, you should not be allowed out by yourself.
When banks make a loan they are actually creating money out of thin air. Not many people realise that and the whole subject of the creation of money, the different forms of money, the impact of wealth creation and inflation is very technical. That is another way of saying that I don't totally understand it either.
As far as I am concerned M1, M2 and M3 are motorways with arseholes in white vans pushing me from behind but if you are a banker you are supposed to realise that they are actually different aspects of the money supply. Don't go there.
Banks just love bad news! Put yourself in their shoes. All they ever hear is glorious prospects and amazing vistas of success in the future but meanwhile "we are a bit short of the readies and could do with a few quid to tide us over"
When I go and see a bank I spend an hour telling them at great length how we have screwed up yet again and all our schedules are slipping and it is all just chaos - in other words, I tell them the truth.
Then when we emerge from this chaos with a modest profit they are very happy indeed.
I have on occasion, leant money. I foolishly leant £200,000 to one of my tenants who repaid it 6 months later together with £20,000 in interest. But with the benefit of hindsight, I don't think we should have done that. There are a million ways it can go wrong. We had no real security for the loan and it was a mistake. One that worked, but a mistake, nevertheless.
Banking is a very precarious business - banks typically lend 15 times their equity capital so if 6% of their loans fail to repay, they are technically insolvent. In practice, they go and have a quiet word with the Bank of England who lend them a few quid to tide them over.
Banks love income from good tenants. If you want to buy something that does not produce a substantial income, prepare to be disappointed
Banks will require a valuation - it is a box they have to tick. If the valuation comes in at £1m they might lend you up to £500,000
Find a bank who will let your lawyer also act for the bank. Otherwise, there will be three firms of lawyers involved in your deal and it will drive you crazy as these people chase each other round in a giant circle. This is VERY important.
If you have a problem, tell the bank and be honest with them and tell them how you are going to solve the problem. If you cannot see how to solve the problem then you are doomed
The bank maight take you out to lunch but they are not your friend and if push comes to shove they can turn nasty very quickly (as I would in their shoes). Bear in mind that they can demand their money back in 30 days and that will screw you.
You should either borrow so little that you don't have a problem or such a ludicrously large amount that it is them who have the problem if you cannot repay it. See Donald Trump and Robert Tchenguiz for details.
Bob Cory
Modified on 09/09/2019 at 09:24:53 by ℗ Bob Cory