The Risk of Confusion
Don’t get this post confused with Phil Collin’s ‘Land of Confusion’, although that does rank among one of his better tracks, just behind the drum solo on ‘In The Air Tonight’.
What I am talking about is being too general in your description of what your business is doing. Someone once told me that perception is reality, when it comes to business lending then lenders certainly see perception as reality.
Take These Guys;
The other day I was at a networking event where some people were talking about how great Socrates was. I entered the conversation as you do at these events, making the comment that ‘I remember his goal against The USSR at the 1982 World Cup’, yes I got some strange looks but it was a fair point, I was referring to the other Socrates, and besides it was a fantastic strike…
All this does have a point. Unless you are 100% clear about what you are dealing with in your business then someone will make the wrong assumption. Commercial lenders are so good at this.
This story is genuine and shows how things can go wrong…
A client came to us after their bank had declined their business loan application. The company director had not gone back to the bank as he was somewhat annoyed and put out. His company had traded really well for a number of years, always paid it’s bills and never really needed any bank assistance. It was therefore somewhat of a surprise that the bank had declined the loan application without giving much justification, the reason was strange and just didn’t feel right.
To the client the decision had completely changed his opinion of his bank. He didn’t want to query it, he walked away determined to look elsewhere.
The actual issue, and reason why the bank had declined his loan was very simple.
The company had just won a contract to supply WHSmith with new cameras and monitoring equipment. This was part of WHSmith’s store upgrade and general stock protection/ anti theft procedure.
The bank had thought the company was supplying ‘Smiths’ the technology/ defence / detection company. The bank in question would not work with any company associated with the defence sector and had declined the loan early rather than try and get the deal through.
The problem was that;
- WHSmith and Smiths had been confused
- The bank didn’t want to offend the client about who they work with
- The client had not been clear when saying who his new contract was with
All in all a bit of a mess. It could all have been avoided if the client had referred to ‘WHSmith’ rather than ‘Smiths’, yes it is common usage but they opened themselves to the risk of confusion.
Top Tips To Avoid Confusion
If you are applying for commercial lending then please make sure your story is clear. Lenders love to generalise and make assumptions. The law of sod says that they will always make the wrong assumption (creditscoring often does this automatically, be careful), so these are my top tips;
- Make it clear what you do and why you are good at it
- Now make it even clearer
- Avoid generalisations and use of terms that could be misinterpreted
- Be honest about your industry, then make it clear how you are different from the pack
The final point is this;
- Take your business proposal, summary or application and give it to your most cynical and sarcastic friend you have (we all have one) and ask for their opinion. The feedback you get may just be the most valuable as it will bring out anything that could be taken the wrong way
For anything else then please contact Lime Consultancy on 01293 541333 or add your comments above. If you want to see Socrates goal from 1982 then scroll down!
By Dave Farmer
Dave Farmer is founder of the award winning commercial finance specialist Lime Consultancy.