What Is Your Cost of Business Borrowing?

business borrowingBusiness borrowing is normally classified in terms of cost as a combination of the following;

  • Interest rate
  • Arrangement fee
  • Legal costs
  • Security costs
  • Exit (or any other) fee

Most borrowers will be driven to judge value based on the above, but what is your cost of business borrowing?

Business Borrowing

For now let us ignore the standard items of interest rate and fees. We all know about them and they hardly make for an interesting blog.

Instead, let us look at where the real cost lies.

The Real Cost of Business Borrowing

OK. What do you need to do to get your borrowing to start with? Let’s take an example of raising some finance to assist with unexpected costs and some growing pains, or as we term it ‘cash flow’.

You want to raise £40k and repay it over 2 or 3 years. You would probably first go to your bank to ask for a loan, so using this example let’s try and understand the true cost of business borrowing.

What Do You Need To Do

Right, we will start with a basic list, something like;

  • Make an appointment (1 hour)
  • Get together your accounts, cashflow, P&L, breakdown of cost etc (3 hours)
  • Update the business plan (3 hours)
  • Prepare for your meeting (1 hour)
  • Attend the meeting (2 hours)
  • Follow up information requested by the bank (3 hours)
  • Speak to your accountant (1 hour)
  • Chase the bank for an answer over a few weeks (3 hours)
  • Worry about what is going on (2 hours)

At this stage you may have an answer, but now need to bring the process from an agreement to hard cash. This can add another day to the process.

In effect you have probably spent almost a full working week getting this finance in place. If you then add in colleagues time and other ‘downtime’ it becomes quite a cost.

Which is why we ask what the ‘true’ cost of business borrowing is.

The Alternative

There is always a different way of doing things. Is a blog the best place to show you that? Probably not.

The easiest answer is that if you want to know the alternative then add your comments above or contact us here and we will show you.

By Dave Farmer


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