Home > Uncategorized > Would you trust this lender?

Would you trust this lender?

I have been attempting to secure a meeting with a new start up business that I am aware is looking for invoice finance so you will have to excuse a degree of self interest in the following but its an example of misplaced trust I believe to be worthwhile highlighting

This particular business has just two clients. At the present time either one of these clients could account for anything up to 80 or 90% of the debtors ledger. This can prove to be a hurdle for many lenders some of whom will restrict the percentage lent against to around 30% of the total debtors.

I could illustrate this with an example but lets just say that such an imposition would more than halve the funds available. This would be very significant for a business such as recruitment that has to pay wages on a timely basis

Through a couple of intermediaries I advised this client that they absolutely have to have assurances that the lender will fund to the required limits. Many lenders will do so but you have to know who

The assurance my remote client received was that this “funded but reviewed in three months when they have brought in  more clients”

The insanity is that the borrower is now obliged to seek “more clients” during the quietest time of year for new business and even then is seemingly unaware of the parameters involved

Why on earth should they accept this assurance? The lender will have them tied into a long contract and they will be severely restricted on borrowing elsewhere.I would also add the the lender is not one that is going to lose sleep over a small clients ultimate failure

The borrower has put completely unnecessary pressure on themselves and could even have signed away the future viability of the business.

Brokers such as myself have an important role. This is where we contribute and I could have lined up at least five lenders who would have funded to the limits required from the very first day with no review or demands.

 

 

 

 

 

 

 

 

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Categories: Uncategorized
  1. July 24, 2016 at 2:02 pm

    Interesting article. Your focus is on the issue of the degree of concentration exposure a lender or factor is willing to accept. Every lender/factor needs to deal with this important issue and develop its own credit policies; whether these are fair or not from the client’s perspective is in my opinion not the real issue. There is no monopoly on the provision of these services and companies and the brokers they use are free to shop and compare.
    The real issue in my opinion is the one highlighted when you state “The lender will have them tied into a long contract and they will be severely restricted on borrowing elsewhere.” Long term contracts, for the provision of short term financing, that contain large early termination penalties coupled with termination provisions that are difficult if not impossible to comply with are predatory and prevent clients who are not satisfied or being properly served (for any number of reasons) from moving to alternatives. As you correctly point out this could prove fatal for the business and in my opinion is arguably unhealthy for the economy as is any impediment to competition. Any business that signs a long term agreement for the provision of cash-flow financing I would argue has not been properly advised by their professionals of the risks.

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