What banks don’t tell entrepreneurs about loans?
Each bank praises its credit – it can be said to paraphrase a popular proverb and actually get to the point. And no wonder, finally proverbs, the wisdom of nations, and this particular proverb have stood the test of time very well. It’s so good that you might wonder if it was accidentally coined hundreds of years ago by a microenterprise applying for a business loan in a bank?
Banks, like all sellers, focus on the benefits of their offer. Of course, they have many great products – Polish electronic banking is one of the world’s leaders – but just the offer of loans for small entrepreneurs is not the strongest side of the banking sector.
Of course, these institutions talk about their services in the best way, but it often happens that they simply do not say everything, hiding unpleasant surprises (for example, in the maze of contract provisions).
Hidden costs and … products
Because this is obvious: if you see an extremely attractive interest rate, you should look more closely at the commission. If you see the “no commission” slogan, please pay attention to interest rates, application fees or insurance.
Anyway, it’s best to forget about “if”. Just pay attention and ask about all costs, because there is really no certainty that if the commission is already high, then the bank will not want to make money on insurance. Either because you don’t use the loan fully or you pay it back in advance. There are still fees for early repayment, and in the case of the so-called credit line also often has “interest” on the unused loan amount.
As you can see, the banks want to make money not only by taking out a loan from them but also by paying it back.
Of course, the years of work that banks have put into hiding fees so that they are not conspicuous – paradoxically – have a significant impact on the awareness and education of entrepreneurs, but there are still people who happen to incur some fees.
We get to know the costs at the last minute
The more so because often these charges … we just don’t know. A website or promotional materials tempt with the slogans “interest from …” or “commission even …”, but the level of interest and fees in your individual case often appears only after accepting the loan application. And often it has little to do with what the advertisement mentions (unless we are talking about the so-called small print).
Only at the very end, there is usually a need to take out additional insurance. Its value to you is usually none or negligible – it is simply a source of additional income for the bank.
Then, however, it is often late enough that you give up accepting costs that you would not normally agree to. When the dates are running out, you may just have no time to look for an alternative.
Instant credit decision? Yes! But nevertheless … no
And you can have very little time. Banks often boast of a fast credit process, but this medal can have two sides. Sometimes only the initial credit decision is quick, and sometimes the decision is instant – but it is preceded by a multi-day (and sometimes even several-week) journey through torture, filling out forms and completing documentation.
It would seem that the whole process of applying for a loan should be easier if you submit an application to a bank where you have been running a business account for years, but unfortunately, it is not obvious at all. We know this from our own experience.
Banks are not interested in the client – or are interested in him too much
In the case of loans for micro-entrepreneurs, there is another problem. Small companies are a very diverse group with relatively low credit needs (most of them amount to ten to several dozen thousand dollars). Diversity hinders banks’ automated creditworthiness analysis, while a relatively small amount of credit hinders an individual approach.
The effect is that banks either grant loans without particularly getting into the entrepreneur’s situation, or set very high demands on them – higher than they actually are needed.
In the first case, it may turn out that the loan will go to the entrepreneur, who – simply put – should not get it, because his current situation and history in the field of cash flow suggest a considerable risk of problems with paying the liability.
In the second case, the banks effectively filter out those entrepreneurs who might have problems with repayment, but a large part of reliable borrowers is also “lost” with them. In addition, this happens with considerable effort (documentation!) And unfortunately – the effort of entrepreneurs.
Situation without exit?
The traditional method of assessing creditworthiness can indeed be difficult for the smallest businesses. However, we live in the 21st century and technology, advanced statistical models and learning algorithms come to the rescue. Credit risk can be estimated very effectively by analyzing the history of bank accounts. Banks could do that too, but there are two issues that stand in the way.
First of all, they could only analyze their customers in an automated manner. Secondly, banks are not always able to squeeze the maximum knowledge from such an analysis. They are not particularly motivated, because as large institutions they have many other groups of clients, including less “troublesome” ones.
And this is where fintech companies such as Good Finance enter the stage. With the most modern technological solutions, flexible and small enough to be able to focus on one of these customer groups, which banks wanting unwillingly, they treat their mothers less – micro-entrepreneurs.