The Psychology Of Business Finance

psychology business financeThe Psychology Of Business Finance

The most common incorrect statement I hear is;

“I want to raise finance for my business”

This is 100% not the case. There is not a business that wants to borrow. A business may need to raise finance for a specific purpose, it is this purpose that the business wants to borrow. It is what the finance will bring that a business wants, not the funding itself.

It is this that is the difference.

Why It Matters

Bear in mind that businesses want what finance will bring. Lenders and businesses differ over this fact. A lender wants to lend you money, a business wants what that finance will bring rather than the finance itself.

Confused? Hang in there…

The big disparity between businesses and lenders (let’s say banks) is all about the psychology of borrowing. For a business wanting to expand and grow, the finance they want to raise is critical, it is an emotional decision, it is a massive part of their life. Most lenders do want to lend, but they don’t want to do it for the same reason as you want to borrow.

Emotion, The Barrier

If businesses could separate the emotion from the practicality then they would obtain finance more easily. The big challenge is in separating the emotion from the practical and it is just not that easy!

Find me a Mum or Dad who doesn’t think their children are the cleverest, most well behaved and who are in some way better than anyone else’s children. OK, some of us parents are more realistic, but where you start to cloud emotion with judgement then things will always go awry.

The challenge for companies is in looking at themselves in a cold, sterile way. The same way as a lender will. The emotion needs to be removed with companies accepting that banks will not lend money for the same reason as they want to borrow it.

How To Get Round The Psychology Issue

There are ways to get your head around this. The easiest thing is to remember that any business should only borrow for one of three reasons;

  1. To make more money
  2. To save money
  3. To otherwise benefit the business

If none of the three above factors apply then maybe you should not be looking to raise the finance for your business. Also remember that cash, or finance, never solved any business problem. It may act as a plaster or help the business trade but it will never address any underlying issue unless what was wrong is changed.

It is very easy for a business owner to see a lack of funding, or difficulties in securing finance as the actual issue. It rarely is.

There are plenty of business lenders out there who will advance money based on set criteria, some of these criteria are quite loose. If you don’t get your head around the psychological side of borrowing then it is too easy to steer your business into debt, rather than to calmer waters.

If the psychological side of raising commercial finance can be overcome then businesses will raise finance more easily and use that cash to far better effect.

For any questions about this post then please add them above or contact Lime Consultancy direct.

By Dave Farmer

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