Baffling John Barnes

Many of us of a certain generation will remember John Barnes as a seriously talented footballer. In addition, he has always been pretty articulate and seemingly a lot brighter than most footballers (admittedly a low bar) as well as coming from a very solid and affluent background

Which makes his disastrous personal finances even more baffling. In addition to the latest penalties (and I am resisting the line that he was always a good “penalty taker”), I appear to recall that he’s been declared bankrupt at least once before

I also recall a quote that he simply “didn’t care about money” but surely there comes a point…

I believe it’s better to care a little less about money than too much but surely such a recklessly cavalier approach is going to result in considerable personal stress?

I also believe that some people are a little addicted to personal danger and I personally know someone who has recklessly stretched themselves in too many directions and simply got involved in areas that any sensible person would have avoided. And its collapsing all around him

The motivation for doing so or simply not caring are unclear but this brings up the ever present truism that credit is about people as much as it is about numbers. There can be little clues in the engagement and the questions answered or avoided, which can be very significant as either a positive or a negative

Thats why when lenders seek to engage on a long term relationship, they insist upon meeting the clients and rightly so.

The lesson from Liz Truss. Why lenders require respect

Daniel Finklestein is one of the very best columnists in the national press. His most recent column (behind a paywall), cuttingly takes apart Liz Truss’s somewhat desperate claims from her very brief time in Downing Street. One paragraph in particular stood out for me (which also refers to the far left within Labour in the 70s and as proves that as ever, the similarities between extremists are more pronounced than the differences)

“It didn’t help that Truss had refused to seek a proper OBR review of her plans and so investors were reliant on a leak to the newspapers, reducing confidence even further.”It didn’t help that Truss had refused to seek a proper OBR review of her plans and so investors were reliant on a leak to the newspapers, reducing confidence even further.

When one borrows money it is absurd to complain about the lenders’ fear that they may not get their money back and to suggest that they are too stupid to understand forecasts. Yet this is the essence of the complaint of both the Bennites and the Trussites”

and…

“There are five points worth making about the idea of abolishing the OBR. The first seems entirely obvious. Forecasts are necessary. In order to budget sensibly and organise the public finances a view has to be taken about what the future might look like. Literally nobody does anything without making a forecast. When you open your front door and take a step out of it, it is based on a forecast of what will happen when you put one foot in front of the other”

It’s hard to argue with this and of course this applies on a micro level as well as on the macro level

Truss believed she could attract lenders without any verified plan. This is simply typical of the lunacy of naive idealists and the key here is the word “verified”. She believed that her rhetoric and idealism is enough to convince lenders

Wrong

Of course, just as in the world of SME lending, there will be complaints that lenders are being too cautious and frequently that complaint is justified but it doesn’t negate the fact that the it’s the lenders who hold the cash. They are the ones taking the risk.

Truss’s proposed solution was to abolish the OBR which is akin to a FTSE 100 company seeking to raise finance without an independent audit, let alone a forecast. On a smaller level I have seen too many proposals to buy businesses (MBIs) where there has been virtually no preparation at all. I couldn’t countenance wasting a lenders time on a prospect who simply shouldn’t be allowed to run a business, let alone purchase one.

And that brings us back to Truss.

Certainly she was the least qualified holder of the office in living memory and you can almost feel sorry for someone who cuts such a comical and delusional figure but business is business.

I will challenge lenders every step of the way. Its my role but also I need to have a degree of confidence in my client. Sadly that can be lacking and as with Truss, a loss of faith can end up with only one result

Why even “satisfied” County Court Judgements are damaging.

There is an assumption that once a CCJ has been “satisfied” then thats the end of the matter and it will disappear from records. Not true

Two conversations during the last week have illustrated this point and why it’s essential to be taking good advice rather than jumping to conclusions.

Firstly i’ve been referred to a client who is under heavy pressure from a business lender who appear to be determined to impose a County Court Judgment rather than negotiate a means of settlement. Unnecessary and I do know that word is getting around that this is a lender to avoid but the key here is that the client has rightly taken the view that coming to an arrangement and avoiding a CCJ is vital for his future.

Secondly is a contact who has fought a lender over a sum due where frankly there was no prospect of anything other than defeat. Costs would have been incurred and rather than come to a sensible arrangement, a CCJ (for a substantial amount) had been recorded. This has now been “satisfied” with full settlement but is that the end of the issue?

No.

CCJs, even when satisfied, remain on record for six years. Of course the counter argument is that being satisfied they are irrelevant but nothing could be further from the truth. Lenders know that this is a record of someone who fought to extrapolate themselves from a legal commitment and lost.

What does that mean?

No credit. Simply put, no lender will touch such a prospect and frankly who can blame them?

• A footnote to this would be that the value of the CCJ is relevant. Small items can be overlooked but anything that runs into the thousands will certainly be overlooked

Business Loans or Invoice financing?

A question many businesses face and one that I frequently advise on. Many readers will know the pros and cons of both options and of course there is a marked difference between the strict term lending of the Loan and the revolving facility of invoice financing. My role is to always determine the best option for the client.

This can come down to a number of factors but the biggest issue I tend to face is preconceived notions. Simply put, many businesses view loans in a more favourable light than Invoice financing. In these cases, Invoice financing is often described by the somewhat derogatory “factoring” and is often followed by tales of cynical practice by certain lenders.

Of course the lenders will claim that “we are not like that now” but the damage has been done. Ive had perfect leads for invoice financing where the business owner would at any cost take out any lending but. I perfectly understand that. Business owners have a tendency not to entirely believe the word of “bankers”.

When its a straight choice between the two options there are certain elements that have to be considered away from the nature and flexibility of the facilities

Firstly business loans are hard to obtain and for SMEs the major banks have all but washed their hands of them. That is an area that maybe needs addressing by a future administration but for now the business lending market is more or less confined to independent specialists. The problem here is that the rates can be horrific (i’ve seen 5% a month on a £250k loan) and the security demands quite intensive

Some of these lenders have nice easy to access websites with lots of smiley emojis and staff who sound young and keen to help. The direct service can be decent but problems can lurk

Invoice financing tends to be promoted by rather more experienced staff and lenders and there is a greater emphasis on getting to know the client and building a relationship. The downside can be the administration of setting up a facility (although there is a newish entrant on the market that has found a way around the worst aspects) but generally, with the assistance of decent broker, it will usually be a cheaper option.

Not much between the two choices perhaps but there is another element which is often not considered because its something that any business owner naturally doesn’t wish to think about. Its security

With invoice financing then security is with the invoices. Yes personal guarantees are often demanded (although only for a fraction of the lend) and I will fight against these, knowing that certain lenders are happy to waive that demand. The reasons given for the PGs by lenders are dated and quite laughable but in truth the fact that the lend is against less than 100% of the assigned invoice value will mean that the lender will invariably collect the liability without having to trouble the borrower. There is a degree of comfort

No such comfort with business loans. Personal Guarantees are likely to be for the full value of the lend and of course, in the event of default that means the business owner is totally liable. The problem here is how the lender reacts. I know some that are open to negotiation but at the same time I’m directly aware of very hard lines taken by a at least one lender using the aforementioned smiley emojis. In fact the line they appear have been taking is nasty and counter productive.

No one likes to think of worst case scenarios but it say role to explain the possible exposures and also to give guidance on the future options