Tuesday, October 14, 2014 7:23:39 AM
How Banks Should Provide Loans
One of The Things that i really hate about Western Culture’s Economics is how we depend upon Adam Smith’s Invisible Hand to Regulate Small Businesses in The Market Place.
i am perfectly willing to acknowledge that this actually works, providing loans for entrepreneurs that would otherwise have a very difficult time acquiring these funds, But this occurs at a terrible cost, In that most of these businesses fail.
i have witnessed several such small businesses that i felt were doomed from The Beginning, & it seemed very foolhardy for The Bank to have ever loaned them enough money for these people to ruin their lives. In one case; A Woman that i knew used her own Retirement funds from a career at Sears to start a RubberStamp Store, which lasted about 3 years. Which was actually surprisingly long, But she drawing on her then husbands income to keep it afloat for 2 years as it was pitifully sinking !!!
The Flaw in this business was that this Woman, who did Not appear to be clinically retarded, just sat in her shop day after day, waiting for customers to come in & buy rubber stamps. It seemed to me that she should have spend The whole day, every day ( aside from other necessary duties & such ) making hand-made cards, Modified Books ( Taking an Old ( Worthless ) Book & Then Cutting it up & Making it into something Very Special ) or Making other very Special ( Big ) Projects, which she’d then sell on Ebay or through their own Website, as The Internet was just getting started at this time.
When you’re starting a new business, you have to work work work, all of The time to make it a success !
In another case; A Small Grocery Store opened in The neighborhood that i was living in, that sold exclusively Asian Foods. The problem being; There were Absolutely No Asians in this Neighborhood ( ! ) It may well be entirely reasonable that non-asians would like to eat Asian foods occasionally or regularly, But as a business model for a corner grocery store in a neighborhood that needed a corner grocery store that sold ‘expected’ items that one might need in The Evenings or Late Afternoon, between trips to The Larger Safeway or Piggly Wiggly, This was a very bad idea. This Asian Store lasted about a year before there was a mysterious ‘Fire’ that gave them an excuse to close.
How Banks should provide Loans.
It seems obvious that Banks should only provide loans to businesses that they believe will succeed, As opposed to any business that provides enough collateral to make foreclosure profitable !!!
Step One : Provide Loans to Businesses that The Financial Adviser, Who is Well Educated & -Open Minded to New Ideas- decides that this is an Idea whose Time has Come ! & Helps The Would-be Businessmyn to Start up their Dream.
Step Two : At this Time; At The Very Beginning— The Bank is a Full Minor Partner, Say - Owning 20% of The Business or Having 20% Say in any Business Decisions, which would remain in effect for The First 3 years or so. At The end of that period, The Business can fully buy out The Banks ‘investment’ whether The Bank wants to sell or Not.
Step Three : The Bank should have ‘Models’ which predict with a high degree of accuracy, How Any Given ’Type’ of Business should establish itself & begin growing. If The Business deviates from its predicted survival path ‘too much’, ( towards bankruptcy ) The Bank can step in & Claim a Greater Percentage of The Businesses & Insist on making changes, perhaps even investing more money ( Their Money as A Partnership Investment ) into The Business to Insure that it survives !
Step Four : At some point; The Bank may make an assessment that The Business is irrevocably failing, & then proceed along a new path of Business acquisition, rather than foreclosure. If The Bank is Unwilling to take this Step, they should have never invested in it to begin with ( ! )
Step Five : Total Amalgamation ( !!! ) The Bank & Business Acknowledge that The Business ( as it is being run ) is a complete washout & doomed to failure, At which point, The Conventional approach would be for The Current Owner to Declare Bankruptcy & The Bank would foreclose on their assets. Under this -New Approach- though; The Bank would simply Take Over The Business, Installing a New Manager & Even some New Employees, but - - ! - - Retaining The Old Owner as an Assistant Manager, or somesuch. The New Model would then continue on under this New Organization for a Time - - & Either Fail or Succeed. If it Fails, The Old Owner is Now Unemployed & Loses all The Companies Assets - - But if The Business then Succeeds, After a Period of 3 or 5 or 7 or 12 years ( ! ), The Original Owner may ReObtain -Their- Business by Buying Out The Bank, whether The Bank is Willing to or Not ( ! )
This Approach Insures that All New Businesses are Given The Best Possible Chance of Succeeding, & The Least Possible Chance of The Store’s Location being Gutted & becoming an Eyesore for The Community.
This Same Approach would be Available for Home Financing, In which a Family that Originally obtains a loan to buy a house, And Then later falls into -Hardship- & fails to make a number of loan payments, &/or is unable to restructure their loan to a new arrangement with The Bank; The Bank would simply then own The House, But instead of boarding it up & allowing drug dealing or homeless squatters to move in - - They would allow The Original Family to continue living there, caring for The House ( Under The Banks Supervision ) & pay a reasonable Rent for remaining there. The Bank would only Evict This Family, which has a Strong -Weight- to remaining in The House, If A New Buyer is Immediately Available, So that The House Would Never be Vacant for Any Period longer than 7 Days.
It just seems completely Crazy to me that a Bank would ever foreclose on a Business or House, Unless they were somehow going to -Make- Money from this Decision. Just to Close a Business down or Evict a Family from Their Home & then Throw everything away is just supremely Dumb. ( ? )
To The Credit of Western Civilization; While i was sitting down at The RubberStamp Shoppe one afternoon, Kris was saying that a local Barbershop in an Office Building in The Downtown Area which was on The Downslide ( ! ), hadn’t paid their rent for that space for several months ! But They were allowed to stay, because it would Not have been profitable for The Building’s managers to leave That space empty. ( ! )
- Which many other building managers are perfectly willing to do, resulting in decrepit neighborhoods that are less & less inviting to new businesses.