Commercial Finance & Dunning-Krúger
A couple of times recently I have come across clients listening to what I considered as bad advice. Typically this has been promises of being able to do things which were never going to happen and applications to lots of lenders who all said ‘no’. In each case the client decided to proceed with another commercial finance broker rather than use my services, because they had been promised something much better than I could offer.
This is where I started to discover the Dunning-Kruger effect.
In truth I had come across this several times before, the indication was the client stating something along the lines of ‘I don’t agree Dave, my friend told me that he knew someone that got a loan at 1% interest and he could do the same for me’. I always referred to this as the ‘bloke down pub’ syndrome, where professional advice was ignored because someone down the pub knew better.
With commercial finance I have seen some real problems with clients succumbing to the Dunning-Kruger effect.
Ironically it is experience that drives confidence, or so the theory goes. Let me tell you a little about a client that decided to go with some less experienced advice, because the deal was so much better with that broker.
The client had a number of issues. The variables we had were such that they would always limit the choice of lender we had who would actually finance their business (they were a landlord). The options I gave the client were based on my experience and knowledge of how commercial lenders work. I gave the client the best options for them based on what was achievable and realistic, I will not promise the earth when it is never going to happen.
The client looked at my suggestions then went with a different broker because they could do so much better. About 6 months passed when I got a call to ask if I could put in place the finance we originally talked about. I was really pleased the client had remembered me and had picked up the phone. The problem was that the client’s credit report showed a series of searches from other lenders, the trading had not improved (without the finance it was never going to) and as such the option we did have was now less viable.
In the end we did get the finance in place but it cost the client more than it would have done.
Am I Right To Be Realistic?
What this did was get me to question whether my approach with clients was correct. I had seen that being honest and giving genuinely helpful advice had cost me business.
That moment of questioning passed quickly, realising that being a professional was part and parcel of losing business. Where my experience says something cannot be done, or can only be financed in a particular way then I will say so. It is part of the confidence I have in dealing with business lending.
What I will change is that I will start to use the Dunning-Kruger curve when I explain my rationale to my clients, hopefully I can use this to get across a level of professionalism and get the client to buy in to doing things that are achievable.
By Dave Farmer
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