I had meeting this past week with an accountant and we were discussing the Business Development Bank of Canada. He did not have good things to say about them based on a past experience and as we talked through the experience a few things became evident that I thought were important to share. Here are three (3) things to know if you are looking to borrow money (forgive me if they seem obvious):
1. You have to know why you are using a bank or lender – what is the specific reason? cash flow gap? bridge financing? need some time for other things to fall into place? Being able to specifically define what you are seeking money for should result in you finding a bank or lender that can provide you exactly what you need.
2. You have to know how you are going to pay them back – not just based on monthly payments but also strategically. What does the big picture look like? What events need to occur so that you can repay the money you are borrowing?
3. Remember that debt is a tool to use not a burden to be paid for unnecessarily – figure out how to best use the capital you are borrowing and understand the cost. Use a mortgage or loan to further your cause not to impede your progress.
On the other end of the spectrum, it is not uncommon for borrowers to say “I don’t think I will be approved so I don’t even want to try”. This is too bad because banks and lenders need to put their money to use and want to provide it to borrowers that are prepared and in need of it. I believe if more borrowers understood their situation in terms of how a bank or lender understands their situation they would be able to strengthen their business and access the capital they need. Because borrowers usually do not understand their situation they often focus on different items to look at compared to what a bank or lender looks at. For example:
– banks tend to look closely at a balance sheet – borrowers don’t (they look at an income statement)
– banks look closely at credit reports – borrowers usually don’t even know what is on their credit report
– banks want to ensure the integrity of a personal guarantee / personal net worth – borrowers usually don’t even know what their personal net worth is let alone what a personal guarantee is
Banks, lenders and borrowers often do not speak the same language but it is important to know what language they speak so that you can reduce the frustration and friction associated with getting a mortgage or loan.
We have an online platform you can use to get prepared to borrow money. Visit www.mlenow.ca and get an mle score and match it to banks and lenders who can approve you. To get an mle score you will have to answer some questions, check off documents you have and enter some basic math. As you do this you will see what banks and lenders see which should reduce the frustration involved in borrowing money.
“A likely impossibility is always preferable to an unconvincing possibility.” – Aristotle
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