Recently, Indian businessman Subir Reddy brought a business loan with an extraordinary interest rate of 24 percent for his new restaurant. It was a very lucrative deal and he was elated, but then it hit him that this kind of a high rate of interest is not normal in business loans. He had to ask his business partner, Venkatachari, how he could get a better deal for the same amount of money. Venkatachari just laughed at him.
“The deal is sealed. You have no option but to accept this business loan with such an interest rate. The financial institutions have made it clear to us that this is the lowest they will lend you,” he said, dismissively. As a businessman, Subir was shocked to hear such bluntness from his business partner.
Subir was infuriated. He reminded his business partner of all the offers he had made so many times to various financial institutions and banks that the offers always remained the same. The only difference was the amount. Each time, Venkatachari had mentioned a lower rate and every time he had been turned down. So it came to a point when he offered to pay the higher amount in two installments, one in January and the other in April, in exchange for the business loan from his own bank.
The request was accepted, but Venkatachari and his associate tried to convince the bank manager that this was indeed an exceptional case. They cited the prime example of their own success, which was a retail outlet that they managed themselves almost on their own. The manager of their bank had visited them and had approved their loan package. They presented copies of their monthly receipts to the bank manager and pointed out how well their business had done despite the unfavorable loan package.
The next thing that the manager did was to go to the prime cause of business loans and that was the government's loan scheme. After much deliberation, he finally opted for Venkatachari's business loan. Even though the decision was favorable, the financial institutions were not very happy with it. They were not able to sell the business loan to the owner directly because the prime reason was that they had already sanctioned a similar business loan to a different company. It was not good optics on the part of the bank manager to give away free business loans to different companies.
The manager of the bank was convinced by their arguments that this was indeed an exceptional case. After all, his own company had given a similar loan package to another business. This time, the sanctioned loan amount had run forty thousand dollars higher. Though he was initially willing to backtrack the decision, the bank manager was adamant and insisted on his original decision.
So, what exactly went wrong? Well, the prime reason is that Venkatachari failed to convince the bank manager that his business plan presented a unique opportunity to increase the sale value of his company. He simply did not have the numbers to back up his case. Though Venkatachari was a highly . . . . . . experienced entrepreneur, making a bold move like this would be hard for him to do. However, it was not his fault. It was simply that the owner was not properly informed about the options that he had.
The manager of the bank eventually decided to backtrack on his decision. The prime reason why he changed his mind was that there was a strong possibility that his business would fail again in the next few years. Though he had been offered a business loan, he felt that it was only fair to give it to the new restaurant rather than risk losing the business. And so, today, he has happily signed on the dotted line on a business loan package worth Rs 8 million.