According to economic pundits, the primary reason for the Great Recession of 2008-09 was the climate of easy credit and greed. There was an assumption that property prices would continue to rise so that loans against real estate was a certain winner. It proved to be gross miscalculation, and as the recession kicked in an increasing number of households and businesses suddenly found that they were not in a position to meet their financial commitments. The result was repossessions on a huge scale and many business failures. Fortunately, economic recovery has set in during the last 4-5 years and the questions in need of addressing revolve around whether business should be able to borrow in order to develop and what price should it be paying?
Sensible
The answer of course is that business has always needed liquidity and borrowing at sensible rates is a necessity in the commercial environment. It is important, however, that borrowing is manageable. The amount involved and the instalment schedule has to be contained in the budget and forecast which should have a positive cash flow.
Many of the traditional financial institutions are far more conservative than they were prior to the recession. Economic recovery requires a positive approach from lenders and businesses that have devised a strategy for growth as well as the means of financing it.
Online Trading
Increasingly it is a new breed of lender that is taking centre stage. Typically this lender is forward looking and making lending decisions on the ability of an applicant to repay back a loan in full from its proposals for the future rather than dwelling on a credit history which may look negative. It is down to the present and the quality of the proposal that is made.
This lender more likely than not operates largely on the Internet with a website that explains what is available and invites online applications with the promise of a quick answer and funds within days for those applications that are approved. Quality websites are comprehensive and aim to answer most of an applicant’s questions before they are posed. Often there will be a frequently asked questions (FAQ) page. There will be nothing concealed, no extra fees just a simple proposal that lays out the total to be repaid against an application, the interest rate that will be applied and the schedule of repayment.
Whatever the Need
Few lenders will be concerned about the use of the money as long as the business looks sound; recent accounts can demonstrate the overall health of a company. The funds may be to settle an unexpected bill at a time when the cash flow is weak or it may be to finance a new project which can help grow the business. In every case the decision on whether to approve an application will be made on the facts that re presented.
On occasions the interest rate charged may be a point or two above the norm. That is generally because of a perceived risk. The business making the application needs to decide whether the loan is affordable and accept or reject accordingly. There will be no charge for getting a quotation.
A New Breed
The logic of this new breed of lender seems to be that there is profit to be made for helping businesses grow. If they have had problems in the past they will not have been alone because many did when the recession hit. It caught out even the best financial brains. The future is likely to be different and good management is likely to be a little more cautious without losing sight of the need to be competitive. Business and lenders can go forward hand in hand in the coming months and years to make the recession a distant memory.
