Misconceived Business Risk

How Business Risk Is Misconceived

For any business looking to obtain funding or finance then it is always a question of risk. Any lender will look at the risk of the deal then decide whether it is one for them or not.

The thing about risk is that often the borrower doesn’t understand it, or they simply don’t see the risk as being real or genuine. In many cases risk is misconceived.

The Danger of Misconceived Risk

Disappointment. Where risk is not recognised or acknowledged then it inevitably leads to a disappointed borrower, normally through seeing their finance application being declined. It can also mean that a genuine business risk is ignored, which can be fatal (read Phones 4 You).

How Risk is Misconceived

Ask yourself the following questions and answer as honestly as you can, don’t over think them.

What is more dangerous?

  • A multi looping, high speed rollercoaster or a gentle carousel?
  • Diving with sharks or herding cows?
  • Cycling on a busy road or walking on a pavement?

If you did this honestly then you probably said that the following were the most dangerous, or most risky;

  • Rollercoaster
  • Sharks
  • Cycling

In reality, and you probably guessed this, there are more accidents on carousels than rollercoasters every year, more people are killed by cows than sharks and more pedestrians die every year than cyclists. OK, statistics can prove different things but it shows that sometimes risk is not where you think it is.

This is the core problem many businesses encounter. They do not see the same risks as lenders. A lender will base a decision of risk on statistics and past experience.

What To Do

Firstly, don’t ignore the risk. Accept it and look to mitigate it. What this means is accepting that a business risk exists then looking at how you can reduce or remove the risk.

One great tool for doing this is ‘Porter’. It looks at risks associated with a business and can really help you identify where your risk is.

The other consideration is that different lenders see different risks differently. If you are a property investor then some lenders will want your business and others will not, the same applies for almost any business sector. If you want to know who likes what sectors then contact us and we will let you know.

Remember that business risk is too easily misconceived, an open mind and a willingness to accept that risk exists will take you a long way.

By Dave Farmer

Lime Consultancy are an award winning business finance advisory. If you have any comments about this post then please add them above or drop us a line via the website.

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