One of greatest concerns for any entrepreneur is a consistent cash flow. Good cash flow allows the business to honor its bills in good time and without pressure. Only then does business become pleasurable. So, every good entrepreneur has a backup plan that saves them the headache and heartache of not being able to cater for the business needs when the cash flow is not as smooth as it should.
I don’t know about you, but I find that the more urgently I need money the further it goes away from me. Also, many small businesses have the habit of looking for finance to cover for cash flow hitches at the last minute. Needless to say there is always the pressure to find a quick solution to sort out a situation. Due to the pressure and human mindset that increases the urgency of the situation, the entrepreneur may opt for very desperate measures to seek for finance. When the lending institution recognizes your desperation, they take advantage of the situation to maximize on profits by charging exorbitant interest rates within unreasonable timelines. Usually the pressure does not allow the entrepreneur the chance to pass the opportunity.
After experiencing the pain and agony of inconsistent cash flow in my business, I developed a list of red flags to look out for, when dealing with potential lenders that want to make me a beggar.
- Does the lender send your loan within the timelines promised?
Once you provide and sign the necessary documentation, the financier will usually give you a timeline within which you should receive your loan. In my experience, majority of the financiers do not send the money within the promised timelines. If you are lucky, they will miss the agreed timeline by hours otherwise, it may take several days or weeks for you to receive your loan. By the time the money comes through you have borrowed, explained, cried and lost your dignity in the process. If your lender does not keep their promise to issue your loan as agreed; they are turning you into a beggar and you need to find a new backup plan!
- Does your lender request for sudden unnecessary requests for additional documents?
Some Entrepreneurs are very organized. They don’t seek for finance at the last minute, because they have already established a relationship with the lender and have even taken several facilities effortlessly and created a good credit score based on the early repayment rate. Despite the wonderful relationship, one day you request for a facility and the lender requests for a government document that requires at least 5 days to acquire. Of course, they will profusely apologize for the slight oversight in forgetting to let you know of their new policy. If this is your lender, be reminded that in the lending business polygamy is allowed and legal especially for the borrower. Never put all your eggs in one basket. Find another lender; your current lender is making you a beggar!
- Does your lender use uncouth and inhumane recovery methods?
You shall know them by their deeds! This is phrase is especially applicable to lenders. The first engagement with a lender is always rosy with endless promises of speed, efficiency and peace of mind, and they live to their promise until they have you hooked. There are many ways lenders hook you, the most common practice is to request for guarantee AKA security to guarantee your loan. Most entrepreneurs borrow with an intention to repay. Sometimes things go haywire, they don’t manage to make repayment as agreed. This is when you get to experience the deeds of your lender. If your lender has a reputation of using uncouth, inhumane and degrading recovery methods, then tighten your belt for the rough ride is about to begin. Before you sign the dotted line, inquire within your networks about the recovery reputation of your potential lender, if you can’t find information within your networks post it on an entrepreneurs forum on Facebook or WhatsApp, get to fully appreciate your risk, otherwise your lender will ungraciously turn you into a beggar!
- Who do the exist clauses/processes favor?
Every good thing comes to an end. And so shall your wonderful relationship with your lender. As you sign the dotted line try and understand the exit clauses stipulated in your contract. Remember when exiting you shall be requiring your security back. Be very clear about how long it takes the lender to process your security documents, what are the roles of each party in the exit process and what laws govern your engagement. It is also important to understand what dispute resolution channels the lender uses to resolve any conflict arising in the course of your contract. Ignoring the above factors may lead to prolonged disputes, expenses and a lot of heart ache that will hurt you and the business and definitely turn you into a beggar!
Usually, when an Entrepreneur is seeking for finance they neither have the grace nor the time to identify red flags that may turn into nasty painful experiences. The lenders are not making it easy because some of them are cashing in on the terrible economic times. As an entrepreneur you need to be alive to the fact that cash flow shall not always be consistent, therefore make hay while it shines and find a reliable credible financier preferably one that is regulated by a government institution such as the Central Bank. Where that is not possible (As is most of the time) please undertake due diligence and avoid being turned into a begging entrepreneur by your lender.