The Two Types of Borrowers You Don’t Want to Be
All too often, we find two categories of borrowers each of which actually hinder the growth and success of their businesses – most times, without the borrowers even realizing it. The categories are, “Shoppers” and “Indecisive.”
Both types of borrowers are in bank relationships in which either their bank has asked them to find a new lender (the business is out of covenant) or the bank won’t raise their credit facility to enable them to take advantage of growth opportunities. In either case, they’re looking for alternative sources of financing and they’ve been pointed toward asset based lenders.
“Shoppers” will typically talk with upwards of five lenders, looking to compare and assess which is best for them. Usually, what they’re really doing is looking for the lowest priced lender with the intangibles (loan structure, covenants, etc.) lost on them.
If you see yourself as a “Shopper,” probably the most important thing to realize is that the more time you take shopping for your deal, the less time you’re taking to manage your business and that’s when business opportunities are missed. Not to mention how much time and revenue you’ve lost in not putting the money you need to work for your business as soon as possible. In trying to save money, you’re actually costing your business money.
“Indecisive” borrowers, on the other hand, typically start off in a hurry but then stall. They want proposals quickly and want to fund as fast as possible. Where they trip themselves up is when they see that asset based financing costs more than bank financing. The dilemma for them then becomes, do they stay with their bank and the lower cost of funds or move to an asset based lender and get a much needed larger credit line?
This should not be a dilemma at all because a quick analysis can determine the impact of increased sales compared to the increased cost of the larger credit facility. And when they look at the numbers, they’ll see that managed growth, even at higher financing costs, is much more beneficial to a business than not being able to take advantage of growth opportunities.
Both “shoppers” and “indecisive” borrowers send a bad signal to lenders. Their inaction shows they’re not serious borrowers and brings up questions about how well they run their businesses.
Whichever category you fall into, know that the longer you take to get the financing you need and put that money to work for your business, the more it will actually cost your business in the long run. That’s falling into the lost opportunity trap which is something to avoid at all costs.
About Celtic Capital
Companies looking for working capital to cover operating expenses, fund growth, increase buying power and take advantage of vendor discounts and rebates turn to Celtic Capital. With an appetite for the more complex transactions, Celtic Capital has a history of success in crafting creative, flexible asset based financing solutions from $500,000 to $5 million with no financial covenants.
As an independent lender, working with companies nationwide, Celtic Capital is willing and able to alter price and deal structure and expand lines of credit to handle its clients’ increased revenues; and when cash flow is an issue, will look toward providing an inventory facility to help offset lost cash flow.