Chapter 73: Loans (Part 1)

Liu Yu was stunned by his question and quickly grabbed his teacup to take a gulp. It took him a while before he said, “General, you only have 1,000 shares.”
The businessman who had secured a directorship had obtained authorization for nearly 8,000 shares. It should be noted that aside from a few major shareholders, there were only slightly over 10,000 shares in total—of course, the Black Flag Army’s shares were not included.
Liu Yongfu was fixated on silver and paid little attention to the operations of the Black Flag Bank. What concerned him was whether military pay could be disbursed on time and whether checks could be cashed. Yet today, he came asking for a seat on the board of directors.
Liu Yongfu was a typical farmer. As soon as he entered Liu Yu’s exquisitely decorated French-style meeting room, his confidence waned slightly, but he refused to admit defeat. He argued stubbornly, “But our Black Flag Army has 4,500 shares—we deserve a seat at least.”
Liu Yu agreed with this view but raised a bigger issue: “The problem is that one-third of those 4,500 shares were subscribed by the Front Camp. Shouzhong plans to use this subscription opportunity to increase his shares to 3,000 and appoint a special director on the board.”
Liu Yongfu insisted stubbornly, “I’m the commander of the Black Flag Army—I should have a seat too. I’ve already convinced the Front Camp for you.”
There was a reason why this cash-first man was now eager for a position on the Black Flag Bank’s board.
Previously, when someone secured two seats on the board, Liu Yongfu didn’t care much. But within a few days, he became restless.
Rumors spread that those two seats were worth 50,000 Black Flag Bank notes!
They even gave specific examples: Before becoming a director, someone borrowed 50,000 from the Black Flag Bank, but the bank only agreed to lend 8,000 in exchange for 100% collateral. Once they joined the board, the bank immediately approved a loan of 27,000 with only 40% collateral, along with many other favorable terms.
As long as the director applied slight pressure on the credit officer, the officer could offer many more perks and even allow partial use of real estate as collateral.
That businessman used the 27,000 along with his own 10,000 to speculate in the opium trade. After deducting costs and marketing expenses, he made a profit of 30,000. Moreover, future loans would be extremely convenient. Thus, it was widely agreed that a seat on the board was worth 50,000 Black Flag Bank notes.
This made Liu Yongfu restless. After decades of hard work, he had accumulated only about 100,000 taels in assets, which was less than 200,000 in Black Flag Bank notes. Yet this person could earn 50,000 just by talking—this made him feel unjustly treated.
Besides, he really needed money.
He owned a warehouse in Baosheng run by his son. With the rise of the Black Flag Bank, the warehouse had also expanded into some financial services.
The bank’s paper currency only stated that one yuan equaled one piastre, but it did not offer exchanges between silver coins and paper currency—except for a few regular customers who needed to settle transactions at market rates, allowing the Liu family’s warehouse to take advantage of such opportunities for speculation.

The warehouse provided exchange services between silver dollars, copper coins, silver taels, white lead money, and Black Flag banknotes—a service urgently needed by many merchants traveling to Northern Vietnam. They had to convert the silver and other valuables they brought with them into Black Flag banknotes to purchase goods, and after selling those goods, they needed to exchange the banknotes back into silver usable in the interior. The warehouse even engaged in some financial speculation, earning quite a profit; last month alone, it made a net profit of 200 Black Flag banknotes. However, it had always struggled with insufficient capital to expand further. Liu Yongfu valued real money, and he indeed faced difficulties: he had to set aside some funds for the Black Flag Army to cover war expenses. As a result, the warehouse only received intermittent investments of over 1,700 silver taels from Liu Yongfu. Last year, things improved slightly as it borrowed 2,000 yuan from the Black Flag Bank at a favorable interest rate, leading to a surge in business volume and profits. But Liu Yongfu only held 1,000 shares, and even though he was the supreme commander of the Black Flag Army, his subsequent loan applications were blocked by the credit officers. Upon hearing that others could obtain at least an additional 20,000 Black Flag banknotes once they became directors, Liu Yongfu was truly tempted: “I’ll handle all the connections; you go ahead and expand boldly.” Although Black Flag banknotes weren’t considered real money in his eyes, with tens of thousands of banknotes invested in his warehouse, it would surely thrive. Especially the business of exchanging various types of currency was in high demand, generating several hundred yuan in profit per month. While there was plenty of other currency available, Liu Yongfu could borrow some from his personal assets, but Black Flag banknotes were always in short supply. With over 10,000 yuan invested, Liu’s warehouse could definitely become the largest trading firm in Baosheng City. But Liu Yu shook his head and said, “Could it be because of those rumors? General, I’m your subordinate. To be honest with you, those are just rumors. The reason the amount increased to 27,000 is purely because of his strong financial strength.” Liu Yongfu immediately said, “It’s no problem to increase the loan amount! Just grant 20,000 yuan to Liu’s Warehouse.” But Liu Yu opposed this idea: “In business, we follow business principles. Although I hold a large stake in the Black Flag Bank, the operations are left to people like Liu Daimai; I don’t interfere. That was his requirement even before he took office. Besides, the amount of loan approved by the credit officers is definitely based on profitability. Why not let Liu Qing come over so we can ask him directly?” Liu Qing was shocked and said, “Liu’s Warehouse needs more money? Let me see… They’ve already borrowed 2,000 yuan, and their own capital is only 1,700 silver taels.” Any firm or individual wanting a loan had to present their financial situation in detail to the Black Flag Bank. Now, Liu Qing knew more about the warehouse’s finances than Liu Yongfu himself. Liu Yongfu loudly questioned, “There’s also over 600 taels in dividends from previous years, plus my name—can’t we get a slightly higher loan amount?”

“There’s no collateral—every loan requires collateral!” Liu Qing said. “The warehouse is large, but it’s not worth much. But considering the general, how about we lend another 1,500 yuan?”
Liu Yongfu wasn’t satisfied, but he didn’t understand matters of finance and didn’t know what was wrong. “Am I not worth 20,000 yuan?”
“Collateral is required!” Liu Qing insisted. “The collateral provided by the warehouse is only worth 200 taels. Lending 3,500 taels is already showing great respect to you, general.”
He specifically pointed at Liu Yu. “As you know, General Liu, Captain Liu is the largest shareholder of the Black Flag Army. But even when he wants to borrow money, it still has to follow the rules. Last month, when money was lent to the armory, its machinery and buildings were used as collateral. If anything goes wrong with the loan, the bank will take over the armory.”
What he said wasn’t true. Factories and steel mills like these now belonged to the Black Flag Bank, a monopolistic enterprise. So when the Black Flag Bank lent money to these businesses in Shanxi City, it was mostly just a formality. Liu Yu demanded high quality and output from these factories, without caring about high costs.
Currently, out of a million yuan in loans, 400,000 yuan was lent to his subordinate enterprises, especially the coin mint, which was a money-draining pit. Although it printed 800,000 yuan for the Black Flag Bank, he kept half of those 400,000 yuan for himself.
Moreover, such corrupt related-party transactions kept increasing, but Liu Yongfu didn’t realize the trickery. All he cared about was whether he could get the loan. “Can’t it be done without collateral?”
Liu Qing patted his chest and said, “As long as there’s collateral, everything can be arranged.”
He knew his 1,000 shares had already been used as collateral once, and his warehouses, houses, and other real estates had also been mortgaged once.
Apart from the warehouse, he had taken out several loans from the Black Flag Bank, all for business purposes, totaling over 24,000 yuan. So after those shares and real estates were used as collateral once, they couldn’t be used again.
He knew the Black Flag Bank was obligated to advance military pay. Suddenly, he thought of something: “How many years can this loan be for at most?”
Due to frequent wars, the Black Flag Bank rarely offered long-term loans, mostly short-term loans ranging from one month to three months, with high profits.
If you could get a six-month loan from the Black Flag Bank, it meant you had a very close relationship with them, and the interest rate for a six-month loan was relatively more favorable. Many opium dealers hoped to get such loans.
As for nine-month or one-year loans, aside from related-party transactions, only people like Liu Yongfu could get them. Even the Black Flag Bank’s own enterprises could only get two-year loans with floating interest rates.
But Liu Qing gave Liu Yongfu an answer that satisfied him greatly: “Three years, but it requires high-quality collateral, and the interest rate will fluctuate based on market conditions.”
“How much can I borrow?”
Liu Qing thought for a moment and gave a conservative figure: “10,000 yuan.”
Liu Yongfu’s determination was truly admirable: “I want to borrow 200,000 yuan for three years, with the best collateral and the most favorable interest rate.”

Liu Qing asked about this issue, “What kind of collateral?”
Liu Yongfu was decisive: “One hundred and ten thousand taels of silver, real gold and silver. But I demand that someone be sent to the board of directors. Additionally, the collateral cannot be kept in Shanxi; it must be placed at the Baosheng branch, under the protection of the Black Flag Army. If the Black Flag Army needs to use the silver, it must be lent to them immediately and unconditionally.”
He suddenly realized that that gold and silver was essentially dead money, and it would be better to find a way to obtain a large loan. Yet he remained cautious.
The one hundred and ten thousand taels he had saved could be entrusted to the Black Flag Bank for safekeeping, but not outside his control. Therefore, it had to be kept in Baosheng, not Shanxi, and no one was allowed to use that collateral without his permission.
“We can send a director in, and for the person in charge of the vault, the head office can send one, and you send one… Hmm, and we should split the responsibility for guarding the vault equally.”
“When will my two hundred thousand yuan arrive?”