There is a famous quote that says “Once you take a loan or borrow money, you will not remain at the same level you were, you will either float upwards or sink downwards”
Businesses face various challenges and cash flow issues may render the business unable to meet the basic expenses or even repay a loan. Most business owners will tend to try many different things to survive and by the time they are talking to their financiers or seeking help, the business may be on its deathbed, yet they are expected to repay the loan as per their original commitment.
As the saying goes ‘’A problem shared is a problem half solved’’. This saying is also applicable to loan struggle situations. A businessperson should not be afraid to share the challenges they are facing in their business. Financiers now have a bigger role to play by ensuring that they give advisory services to customers to both ensure the money is put into good use, and at the same time the client progresses from one stage to another in business
Most business people also tend to adopt a wait and see stance with the attitude of “let’s cross the bridge when we get there” forgetting the bridge may not be available when the time comes and the customer needs to cross. The water may also be too deep to swim!
It has also been observed that during the loan processing many clients do not go through the fine print on the loan application and disbursement documents and they end up signing without a thorough reading, understandably due to the pressure and urgency they have for various reasons: be it for a sale they need to close; a supplier they need to pay; a contract they need to facilitate etc. Most customers get a full understanding of the impact of the accruals of interest and penalties at the point of default.
Borrowers all need do a post-mortem of their business and check on the following few tips:
1. Purpose of the Loan
The client needs to ask themselves hard questions including
• Did I put the money borrowed to the correct use?
• Did I meet the purpose that the money was intended for?
• Did I divert some of the funds to non-income generating activities?
If the customer understands this, then they should identify where the rain started beating them. So, the next time a financier insists on understanding the purpose of the loan from a borrower, they are simply trying to get a better understanding of the status, and not getting too personal with the client as is often imagined
2. Worst Case Scenario
The customer needs to start with the worst-case scenario in mind.
Sometime businesses will fail due to reasons beyond the borrower’s capacity to handle. The borrower needs to have a back-up plan or plan A, B, C or D. Where possible a borrower should have various income streams to supplement the main business. This however needs to be handled with caution to guard the customer against becoming a jack-of-all-trades and master of none.
3. Cost Centres
Every businessperson wants maximum return. Therefore, where a customer can manage cost centres by reducing the unnecessary expenses, they should not hesitate to make the necessary changes. This will be well illustrated by the business keeping proper record. More information on proper book keeping read our previous blog below:
4. Business Model
Customers need to review their business models periodically to understand if the model is still viable. The business should be able to adapt to the technological changes that keep emerging, as well as benchmarking by “keeping your friends close and enemies (competitors) closer” to see what is working for them. Therefore, one of the strong attributes of any business is innovation and adaptation to change. This has been witnessed especially during the current Covid 19 pandemic, where only businesses that have been able to innovate and adapt to change are succeeding.
5. Share Challenges Faced
Any financier will be willing to accommodate challenges faced by their clients. The financier will most of the time if not all, demonstrate empathy rather than sympathy, meaning they will understand your situation, and try to assist to find a lasting solution, but the buck ultimately stops with the borrower. As quoted by Oprah Winfrey, “Challenges are gifts that force us to search for a new centre of gravity. Don’t fight them just find a new way to stand.”
The above points may not be exhaustive, but any borrower should keep their financier abreast of the happenings in their business, and when in default keep their word and be as honest as possible about the situation at hand. Most financier will take action on default where there seems to be no clarity on way forward and good will from the borrower.
People also need to demystify the myth that loans are bad. If put to good use a loan can really elevate the business community at large. When a loan is borrowed ensure discipline becomes your number one best friend.
At Springboard Capital we offer financial advice that will help you make decisions about what you should do with your money. Get in touch with us through Whatsapp or Call us through 0700094444 for your friendly financial fulfilment needs.
Article written by John Kuria (Recovery Department) – Springboard Capital Ltd.
At Springboard, we never stop improving our services to enhance our team’s capabilities and increase customer satisfaction. We are a client-centric organization. We make it our business to understand and help our clients achieve their business goals.