Are you following a financial rabbit trail? Does it loop around in seemingly endless illogical patterns? Animals use path integration to determine their location and direction. In this post we’ll learn how to manage the impulse to follow a financial rabbit trail and stay on the path towards your strategic objectives.
The Meandering of the Drunken Borrower
The rabbit trail phenomenon is out there in the forests of business and personal spending and investment. Consumers and business leaders often follow enticing trails that veer from their strategic path and cause lost time, initiative and precious money.
The distraction of financing choices is a particularly vexing rabbit trail. Personal and business spending decisions should be made on sound fundamental analysis. The financing decision is a secondary consideration in the decision-making process, never the primary driver.
To Hire for Cause vs. the Fresh Tracks of Financial Lures
As an illustration, JPMorgan Chase is offering an incentive to hire new employees through its Loan for Hire program. Chase is offering an interest rate discount of 0.5% for every employee hired between June 29, 2010 and December 31, 2010 up to three new employees. The small print disclosure requires NET three new employees so you can’t fire three and hire three more or hire the same three back later to qualify for the discount.
Are You Being a Loyal Bank Customer or Wandering Off-Trail?
We discussed in an earlier post how consolidating your banking business could provide significant pricing advantages on bank products. In this case an existing Chase business-checking customer can get an additional 0.5% rate discount. So if you hired three new employees and were an existing business checking customer you’d get a 2% total rate discount on your new or expanded business line of credit. Click here for the program details from Chase.
Looping Back on the Trail of Hiring Decisions
The rate rewards from Chase or any bank are a nice added benefit for the business that has already decided to hire three new people and to expand or open a new business line of credit. The hiring decision should be driven by increased demand for the company’s products or services and the need for more capital liquidity. The total annual interest savings for a company that maximized the line of credit size ($250,000) and maximized the hiring rewards would be $5,000.
Crisscrossing the Intersection of Conclusion
This is certainly a nice offset to the company’s overhead but the reward does not in itself justify hiring a new employee. Nor does it justify drawing down the entire line of credit without a sound business decision to deploy the funds for maximum value creation and positive leverage. You should also do an extensive review of the bank’s competitors’ rates and bank products. They might be offering a similar or better promotion.
Bringing This to a (Trail?) Head
This post is not an endorsement or a criticism of Chase’s program but is used as an example of how to correctly evaluate business and personal spending decisions independent of the rabbit trail of financing options. While Chase’s Loan for Hire program makes for great public relations and promotes public policy in a tough employment cycle, the rewards are a distant consideration when deciding whether to hire employees or take Chase’s offer.
So here are a few ways to avoid rabbit trails that meander around personal and business financing decisions.
- Commit to your personal and business goals in writing. Make a budget and a list of goals at the beginning of each year and stick to them.
- Review and evaluate your budget and goals often throughout the year.
- Avoid the temptation to make a spending or investment decision primarily from financing considerations. Leverage should be evaluated separately and secondarily.
- Don’t finance a government policy initiative unless it fits with your core business model and creates added value and profitability. This applies to personal and business spending decisions.
- Seek the help of a qualified advisor to make important personal and business financing decisions.
In this post you’ve learned to identify financial rabbit trails and strategies to manage the temptation to follow them. Happy navigating!
- Hire a New Employee? Chase Will Lower the Interest Rate on Your Business Loan (eon.businesswire.com)
- Chase Offers Small Business Borrowers Incentives to Hire (businessweek.com)
- Hire an employee, get a loan break (money.cnn.com)