Are you a Borrowing Gladiator? How to Survive the Lion’s Den of Debt

 

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You’ve heard of the seven deadly sins, right?  How about the four P’s of marketing?  Many business and consumer borrowers make five serious mistakes before, during or after borrowing money.  Be a winner in the borrowing arena by slaying these borrowing mistakes.

1. Creating a questionable reason for borrowing:  Many people don’t have a clear business or personal reason for borrowing money.  Slick advertising often creates a perceived need for a product in the borrower’s mind.  Many times this need distracts from the core strategy of the business owner or doesn’t add value to the consumer’s life.  The focus turns from the product to how to finance the product.  A financial rabbit trail and buyer’s remorse is usually the end result.
2. Overestimating future cash flow:  The shiny new thing can often cause business planners and consumers to overestimate their future earnings to cover the debt service.  The borrower tortures the financial projections until they confess an adequate amount of new cash flow to cover the loan payments.  The result is often times a future crisis when business sales or memberships are below plan or the consumer’s cash flow is reduced because of a layoff or unexpected expenses.
3. Having poor lending market intelligence: The borrower who only visits one or two banks for a loan is putting themselves at a huge disadvantage.  Loans are commodities that are best priced through intense market competition.  Create your own bidding pool of lenders to ensure you know what the current market terms and competitive lenders are.  Do your homework or hire someone who knows the borrowing landscape.
4. Enlisting a shallow bench of experts on your side:  Most business borrowers and many consumers would benefit from an experienced borrowing coach to help devise borrowing strategy and be a guide throughout the borrowing process.  An experienced attorney, accountant and bookkeeper would also be helpful to avoid costly mistakes from an inappropriate loan.
5. Using too small of a shovel for the paperwork blizzard:  Business and some consumer borrowers are faced with an avalanche of paperwork, reporting requirements, tax filings, covenant compliance reports, and other bank information requests.  Failure to provide the required information to the bank in a form that’s acceptable to them can get you on their credit review radar quickly.  You don’t want the extra attention when you are trying to run a business and generate profits.

The common thread running through all of these borrowing mistakes is a lack of knowledge about the borrowing process.  Many business and consumer borrowers could benefit from additional training or better yet, expert help before, during and after the loan closing.

Who do you have on your side during the borrowing process?  Do you feel you are on a level playing field with the lender or do you feel overmatched?

Related Articles

• Top 5 Home Equity Loan Mistakes (homeequityloan.net)
• Are the banks ripping us off? (telegraph.co.uk)