Having been a credit underwriter and worked in the commercial lending sector it is easier to take a step back and look at what the lender hears when the borrower says something. I hear the message from my clients but a lender commonly hears something totally different.
This is where the confusion starts, where the borrower gets let down and the lender loses the chance to take on some good business.
Speed vs Desperation
Let’s start at one of the classics. Speed vs Desperation. A borrower wants to raise money quickly. This could be for any good reason, normally that they can obtain value by completing a quick purchase or get better terms by paying upfront, whatever it may be there is normally a very good reason as to why speed is of the essence.
For a lender, the quicker the funds are needed the more desperate the borrower must be. The more desperate the borrower the less the lender wants to lend to them.
You get the gist of how a simple message is so easily lost in translation.
This is one where the reality is somewhat different to how the lender thinks. A personal guarantee is pretty common when it comes to company borrowing. A lender will see a personal guarantee as the director’s statement of confidence in their business, hence if the business owner won’t back their own business then why should a lender?
From the borrower’s perspective, if they were to ask whether the employee of the lender would provide a personal guarantee to ensure they received their salary next month then I doubt any would.
The fact remains that the unforeseen happens. Communicating that you don’t want to provide a personal guarantee needs consideration and careful wording, you may not win the battle but you may get some compromise if you do it carefully.
The Client or Accountant?
The standard answer from any borrower when asked for financial information they don’t know or don’t have is to advise that they ‘don’t have it to hand’ but can ‘access it from our system’. The answer is never ‘my accountant does that’. For a lender it is key that the business owner understands their business, not knowing the figures is a genuine negative.
The flip side, because there always is one, is that most business owners are not accountants and have minimal interest in the accounts. They understand profit and cash flow, they understand the KPIs, but the accounts are more of a ‘meh’, a necessary evil when the driving numbers are the KPIs.
The big unknown here is that the KPIs are often as important to a lender as they actual numbers. Give the lender the KPIs then follow up with the financial numbers, it immediately takes away the lender perception that you don’t know what is happening in your own business.
For any help with raising business finance then please let me know, happy to help.
By Dave Farmer