Dealing with People [36 Stratagems] - An Effective Guide to Proper Conduct

Author: Chen Xiaochun / Country: Mainland China
Publisher:
Publish Date: 2006-06-01
Features: Borrowing money to get things done, the word "borrow" implies the most abundant and commonly used resource—wealth. The phrase "borrow money" has been linked since ancient times, universally understood and used; however, skillfully using others' money to achieve one's own goals is a high-level resource that requires flexible application. Leveraging others' funds to achieve personal objectives is a relatively smooth path to success. Today, those who aspire to start businesses and build enterprises are all adept at borrowing money to advance their own causes. They establish companies, build their own docks, and then use these as capital to secure investments from financial institutions and venture capitalists, obtain bank loans, engage in private lending, and even raise funds from the public through stock offerings, among other methods, all in pursuit of greater growth and expansion. Some shrewd individuals are particularly skilled at employing clever tactics to borrow money for their own endeavors. Let us examine the story of Daniel Ludwig, the world's most successful shipowner, whose fortune was built from scratch.
When Ludwig first embarked on his entrepreneurial journey, he relied on skillfully borrowing money from banks. One day, he discovered that transporting oil by ship was more profitable than transporting goods. However, with limited funds, Ludwig could not afford to buy an oil tanker. So, he decided to purchase a cargo ship and convert it into an oil tanker. But where would the money come from? Ludwig turned to bank loans and began seeking financing. He visited several banks in New York to borrow money, but the moment they saw his tattered appearance, they disdainfully asked, "Do you have collateral?" Ludwig argued to convince the banks: "After I buy the cargo ship, I will immediately convert it into an oil tanker. I have already leased this ship to an oil company, who pays me monthly rent. This rent is exactly enough to pay off the loan in installments each month. I can hand over the lease agreement to the bank, and they can directly collect the rent from the oil company, effectively settling the loan in installments."
Although Ludwig believed his plan was reasonable, every bank he visited dismissed it as absurd and lacking credibility. Undeterred, Ludwig persisted. This time, he approached the head of Chase Bank and presented his proposal. After hearing Ludwig's unconventional reasoning, the bank president thought: Ludwig was penniless and likely had no creditworthiness, but the oil company's credit was reliable. By collecting monthly rent from the oil company using his lease agreement, the bank would be secure—this was essentially a form of installment repayment. The only risk was unforeseen major economic disasters. But even if Ludwig's plan to convert the cargo ship into an oil tanker failed, as long as the ship and the oil company existed, the bank would not lose its money. Thus, Chase Bank agreed to lend Ludwig the money.
Ludwig purchased the cargo ship he needed, converted it into an oil tanker, and leased it out. He then used the ship as collateral to borrow another loan, enabling him to buy another vessel. Ludwig's brilliance lay in leveraging the oil company's credit to bolster his own. This strategy continued for several years. After each loan was repaid, Ludwig became the owner of the ship. The rent was no longer collected by the bank but instead went directly into his own pocket. Later, Ludwig set out to establish his own shipbuilding company. He designed an oil tanker or another type of vessel and entered into contracts to lease it upon completion. With the lease agreement in hand, Ludwig went to a bank to secure a loan for shipbuilding. This loan was structured as deferred installment repayment, meaning the bank would only begin collecting payments after the ship was launched. Once the ship was launched, the rent could be transferred to the bank, and the loan would be settled just as he had initially planned. After all the procedures were completed, Ludwig became the rightful owner of the ship, having spent nothing upfront.
When Ludwig's innovative financing method became widely accepted, he successively leased docks and shipyards from others and borrowed money from banks to build his own ships. In this way, Ludwig established his own shipbuilding company. During World War II, the U.S. government purchased every ship Ludwig built, and his company rapidly expanded. Later, someone asked the head of Chase Bank why they had lent money to the penniless Ludwig. The bank president explained: "After Ludwig proposed this idea, we were initially shocked, but upon careful study, we realized his reasoning was sound. We call this type of loan 'dual-documentation.' It means the loan is guaranteed by two separate companies or individuals, with their economies being financially independent. Therefore, even if one party fails to repay, the other can settle the debt. This gives the bank double assurance."
Ludwig's ingenious "dual-documentation" approach—leveraging a third party (individual or company) to enhance his own credit, thereby securing the necessary capital to launch his ventures, and subsequently using rental income to repay the bank loans—was a brilliant way to borrow money to build his own business and earn profits. This method worked because it opened new channels for inflowing money, provided banks with dual guarantees, and satisfied the capital's pursuit of maximum profit. The modern practice of home mortgages and installment payments for large purchases operates on the same principle. The only difference is that Ludwig was ahead of his time, bolder, on a larger scale, and more clever in his approach.
P19-20