Marketlend Academy: When should an SME not seek financing?
Marketlend CEO and Founder Leo Tyndall discusses the criteria an SME should look at before deciding not to seek financing. If you want to read the full transcript please see below.
So, they shouldn’t seek finance when the finance itself firstly doesn’t match their needs, so if it’s a principal and interest loan. And they shouldn’t seek finance when the finance itself is actually not designed to help grow their business, but actually is going to strip their cash flow so that they won’t be able to pay for other expenses. And this is a common uh problem that we see a lot. Someone may get $50,000 and then all of a sudden find that they’re paying $1,200 every week. And so, they’ve got the $50,000. That was great. Fills one void. But then all of a sudden their cash flow’s stripped and then they’re all of a sudden $1,250 short every month. And so when they’re looking at their finance, they should say, “Is this finance going – how’s it gonna affect my cashflow?” Because the financiers going to do the same thing. How’s it gonna fix my [cashout 00:23:22]? What is my ability to service the debt going to operate or what’s it going to be like when I turn around and take on these facilities?”
If you look at a home loan, typical debt service ratio is 30% of whatever you actually borrow, you should be able to pay it back from your income. Now, similar rules should apply with a SME and SMEs should think about it, is is this going to chop 50% of my cash flow or is this going to chop 12%? They need to look at their cash flow as a whole.