My last blog how banks can help your startups grow missed an important player in the fund-raising section – NBFC.
The topmost reason for any startup or new business to approach a bank is to get a loan for a startup business.
We, the pauper startup owners just need money to eat, drink (cheap liquor. Anyone for 8 PM?) and help kick-start our business.
That’s what we really ask for.
Luxuries of life are what we call as “Moh – Maaya”. We had left them behind, the day we decided to turn into entrepreneurs.
And in the wide range of loans offered by banks, the one on top of the list for every startup owner is the unsecured business loan for a startup.
All we need is an unsecured loan.
Don’t ask me “why not secured loans?”.
9 out of 10 times we are without property, bank balance and family members, who had disowned us the day, they came to realize we will not be taking a secure 9 to 6 job to secure their future.
The legendary blog I am writing now is not to share another one of my sob stories.
The blog is to educate you the naïve startup owners about NBFCs and how you should deal with them.
2017 was a Watershed year in the history of my business.
To start with, GST wreaked havoc. Trump’s trumpet blew in the wrong way (Eh? Does it even play the right sound).
Overall, we just survived the year living off prayers, savings and a new venture.
Our growth on steroids was replaced with growth on antibiotics (if you know what I mean).
New orders dried up. Payment cycle went slow (slower than a snail’s pace) and we were royally screwed.
Worse, just when my sabbatical from existing line of business to focus on the new line of business – Digital marketing Training was beginning to show results – I was called back to duty.
I was summoned to get my ass back to work and get back to do, what I did best – Get Money from Overseas Business!
After months of struggle, we are finally getting back on our feet.
I have been granted permission to go back to the sabbatical. The bank balance has finally started showing some positives and everyone.
And the bank relationship managers who were all hiding behind their desks from us throughout the year have started recognizing us. Their memories are back (which I am sure is driven by the average balance we maintain in our accounts 😊 )
In 2017, when the money was hard to come by and the salaries were hard to pay, we called our Loan Agent to help us raise some funds.
Our loan agent is a decent guy who does his work with honesty.
Since we needed the money urgently (I cannot think of one moment when I have not required the money urgently. The word urgently has become so urgent that I at times, start doubting my urgency).
The loan agent suggested raising money from NBFCs. NBFCs for your kind knowledge are Non-Banking Financial Companies consisting of big names such as Bajaj Finance, Tata Capital, Capital First, Sriram, Mahindra, etc.
Every company which gives you loans but does not qualify to be a bank is called as an NBFC.
Now, NBFCs usually welcome you with open arms. Behind those open arms is a truckload full of documents with exuberant interest rates mentioned in between the lines.
Since they are taking a risk on you by giving you an unsecured loan (note: they do give secured loans but I prefer banks over them, when it comes to taking secured loans), the exuberant rates are a part of the trade.
As usual, we went through the grind of submitting papers and signing on papers we barely understood.
Where “Signing on papers we barely understood” came to bite us back.
I was taken for a ride by two NBFCs.
One NBFC changed the conditions of term loan they gave us by setting a repayment structure in which they took the majority of principal in the first year.
Their repayment structure worked in a way where you pay the highest installment in first year and then the installment would cut drastically in the second year and it will come down a notch in third year.
Incidentally, I was told that I must pay a flat EMI for the 3 years.
When I saw the repayment structure I was furious. My first thought was “This is not what I agreed on”.
I called up my agent asked him “WTF is this?”
As usual, he said he will revert to me by end of the day.
He did call me at the end of the day only to sound apologetic. He said, he left the blanks for the NBFC to fill.
In short, I was screwed.
These guys are good with fill in the blanks. They score a perfect 10 out of 10 in this section of question paper.
Now, I have nothing against the NBFC. They have their own rules and since they work in a high-risk environment, they are entitled to protect their interest.
But the terms now imposed on me were unfair.
Let’s just keep aside my emotional outburst and think logically about why I found the terms of repayment – so draconian.
I needed a loan “urgently” because I had some catastrophe to take care off. Usually, such incidents don’t just go away overnight and can take months of your business’s life.
The first few months of any business under distress taking a loan are crucial because you are to wisely spend the money and get business back on its feet.
What I had with me was a repayment structure where I paid say 20 Rs./month for the first year. 10 Rs. /month for next one year and 7 Rs. /month for the last year of term loan.
So basically, when I should have paid the least EMI was the year, I was paying the most EMI.
The NBFC. in pursuit to cover its risk broke our back by putting terms which are beyond comprehension.
If only they had the big guy (don’t go on the physical appearance) Nirav Modi dealing with them, they would know what it takes to screw a financial institution.
I discussed my agony with few good friends, who unequivocally asked me to shut the F**k up. They chided me for signing on papers without realizing what was written on the papers.
I asked them “How many of them have ever read every single line presented to them by a financial institution?”.
You know the answer.
Let’s just say “I was destined to be screwed”.
So yesterday, we completed the first year of the term loan and I am going to close the loan by end of the next month – even if I must pay a closure fee of 5 % to get away from this NBFC.
I am ripped, and I cannot do anything about it.
And just when I thought, I have had enough of NBFC drama – along came another “taken for the ride” incident.
Fortunately, our poor agent wasn’t involved in this one.
He has stayed away from us since the last incident.
We have had a limit with this NBFC for some time and like good decent businessmen, we have never defaulted on interest repayments and have kept the limit on the lower side. (I was about to write we have limited the use of limit 😊 and then I realized how funny it sounded)
So, I get a call from an executive from NBFC with their old, tired sales pitch “Sir. Based on your good record, we have decided to upgrade your limit by ____ amount”.
Frankly speaking, I am more comfortable using limits than term loan as with limits, you just pay the interest. On the other hand, term loans put a huge burden on your head in the form of principal + interest repayments.
I asked the cheerful, helpful guy to complete the formalities and sanction the higher limit.
In between, I managed to negotiate the interest rate, insurance money. Everything that I wrote in my last blog was done to perfection while dealing with them.
I gave myself a pat on my back for being a “smart businessman” who knows how to deal with banks, NBFCs or money lenders (just kidding!).
Like always, I signed at all the places pointed to me by the cheerful bank manager.
The cheerful sales manager said, “I will fill in the blanks for you”.
We fundamentally had agreed on whatever we discussed on email. I saw no reason, why i should not trust the cheerful guy.
As soon as the limit was disbursed, we used it completely and then paid some X amount every month.
Finally, when our payments came. I asked our accountant to deposit some money in the limit to bring down the interest rate.
To our surprise, the option to transfer money back into the limit had disappeared.
I called up the customer care and they said, “You have taken a term loan not a limit”.
I said “This is just not possible. I have the emails to prove that a limit not term, loan was sanctioned”.
Customer care rep asks me to check the sanction letter.
Guess what! We did not have the sanction letter.
Looks like, the guys from NBFC had the sanction letter and it clearly stated that we had taken a term loan – not a limit.
I was aghast and felt stupid (not cheated because the guys who tricked me did what they are best at doing. I was a moron to have trusted them to fill in the blanks).
I called the “cheerful” sales manager who in all his confidence assured me that it is a limit not a term loan.
He promised to revert back to me in a day’s time.
Obviously, he didn’t.
All the courtesy, customer satisfaction, client first attitude had now gone into the dustbin.
I was the distressed party. You know what banks do with small fries like you and me when they know they are at fault, but all odds are against the other party.
They pretend oblivious to any wrongdoing around them.
I called the cheerful manager again, who was incidentally less cheerful this time. (Gosh! I got to appreciate his cheerfulness)
He responded (unapologetically) “Sir. I checked. It was a clerical error. By mistake, we disbursed a term loan instead of a limit”.
I was like “Clerical Error! What kind of B.S is this?”
The next thing I know – I am talking to my lawyer who advises me to not to file a case against NBFC. As per him, NBFCs have gained a reputation for indulging in such activities.
Also, since you signed a document without reading in between the lines – it’s your fault, not their fault.
I called up the “not so cheerful” manager again and requested him to help me as we didn’t need the money more.
The whole point of taking the limit was to use it in a flexible manner.
The guy promised to give us more money in limit and help us as soon as the next installment is deducted.
Yesterday, the last installment was deducted, and he has gone incommunicado.
I am just preparing myself to get ready for another stupid fight.
(the ringtone on the guy’s phone is a Punjabi kirtan which means – You will always have a lot of happiness if the god has his blessings on you. I know why he has this ringtone 😊 If they keep getting customers like me – God, Satan and anyone who is immortal will have all their blessings on them).
This blog of mine sounded like a customer complaint on a consumer forum but I have promised myself to write truth and only trust to help other startups and small businesses (main sach kahunga aur uske bina kuch nahin kahunga my lord!).
Here are two important learnings for you from this blog:
- Never ever leave the blanks empty while applying for the loans
- Deal with NBFCS with extra care. They are the modern version of Money Lenders from bad old days.
- Always have a backup plan when things go south with these financial institutions.
- And when all goes wrong, you know where Mallya and Nirav Mod stay. Don’t you?
Before I end, I have to write a very funny incident which happened in PNB the other day (imagine. I found something funnier than all the Nirav Modi Jokes).
The other day, one of my relatives needed some urgent cash in lakhs to give a bonus to labour on Holi.
They have their project site in a remote location where internet drops off as per its wishes.
He got a call from his manager saying “it is holi and the local branch has no internet. I need the money else the labour won’t work after Holi”.
The relative was with me in a hospital and he just had one spare cheque with him in his pocket.
Like all of us, he wrote self on the cheque – signed it and went with me to a prominent PNB branch in south Delhi.
The bank branch as usually was reminiscent of scenes from Pankaj Kapoor’s serial office- office.
The lead cashier was discussing chai and pakora with other staff.
And everyone was so uninterested to work.
It looked like Information Technology has been forcefully shoved down their throat.
They hate I.T and they hate us – the consumers.
But they love government?
You know why? because they know irrespective of the gravity of a screw-up, they are only accountable to government.
Well. Government is not accountable to anyone.
So, my relative presents the cheque to the ma’am at the country who takes the cheque to the manager and the manager says “if the director of the company is here and the cheque has self-written on it. It cannot be cleared”.
I was like “Seriously! Even I run a company and self is what you write when you need the cash from your bank account using a cheque”.
As usual, the woman behind the counter (a woman who hated IT as much as I hate bathing) did not budge.
The time on the clock was around 1:30 pm and Holi was next day.
He dropped me and rushed to his home (around 10 Kms from where we were standing) to get the chequebook.
The branch near his home was kind enough to use another self-cheque and give him the cash.
I fail to understand; how can two branches of the same bank have two different set of rules?
But then, you can’t argue with “PNB”.
They are a bank which ties a 2 Rupee pen with a steel chain. I wish they had taken the same diligent, cautious approach to saving themselves from the biggest bank scam in the history of our country.
Somethings never change.