Structuring Business Finance is more complicated than many, including some accountants, realise.
In the most primitive sense, money is a commodity, and in that regard, the product offerings between credit providers in some market segments have become increasingly homogenous.
Reputable finance brokers and bankers will always strive for good customer outcomes and be cognisant of laws and guidelines that provide the necessary framework to support borrowers.
In our experience, the structure and subsequent conduct of borrowings usually is more material than the credit provider selected. Therefore, it is critical to focus on identifying the needs of the business first, rather than jumping straight to a credit solution or provider.
Or, being purely enticed by interest rates.
FACTORS DRIVING LENDER CHOICES
Feedback from business borrowers shows that the following six factors are most critical when forming a basis of recommendations.
These factors are often taken into account at varying levels, depending on the customer’s needs. This can be a helpful starting point when looking at options for building business lending facilities.
How long is the initial loan term, when does it need to be reviewed?
Short-term P&I, Interest Only, what is the basis for repayment of the debt? What does the new cash flow position look like?
How much will it cost? Of course that is important. What is the interest rate and how is it actually calculated? Be careful here - it isn't always simple to work out exactly what you are paying. Make sure you get advice if needed especially when the components of your interest and fees is made up of many components.
As things change or the business grows, is there future borrowing capacity to meet needs? You may already be at or close to your lending limits which could impact your plans.
Covenants are important and can actually help keep your business on track. Make sure you know what they are and how you can stay inside them. Some lenders can frustrate with qualitative demands or a thirst for endless paperwork. The amount of time invested in managing the lending facilities are important too.
Treasury, Foreign Exchange, Trade Facilities, Merchant Facilities etc. Are there specific additional services that you will need from a banking relationship?
Does the chosen lender have the expertise to deliver on these consistently?
Quality of people is a critical factor for many businesses at the front and back end. Many borrowers may be “low touch”, so this is less of a factor for them. For others, the relationship is a critical element and needs to feel right.
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