Let’s face it. Entrepreneurs and business owners are always looking for money. I find it interesting that many folks running a business who need money don’t take the time to really understand how much money is actually out there and available to them. When words like “money, financing and capital” are used they can cause someone’s eyes to glaze over as these terms are associated with confusing and uninteresting concepts. The truth is that money can be complicated and boring to understand but it doesn’t have to be.
I talk about this often but it’s always good to repeat valuable pieces of information – especially if it saves someone from wasting their time. One of the biggest misconceptions people have is that their bank has their interests in mind. I am not saying that banks do not care about their clients but I do think it is important for people to know that banks are businesses not charities. As such they have a business plan, target customer types, sales goals, profit margins, etc. which all attribute to their ability to help someone looking to borrow money. Many people think that just because they know their banker they can ask for whatever they want and if the bank says no that they have no other options. Here is how it really works.
There seems to be a spectrum that exists for people who need money. On one end of the spectrum are those that think they can tell a bank or lender what their looking for and demand the terms they want. On the other end of the spectrum are people who don’t say anything and assume they are destined to be declined if they step out and ask a bank or lender for money. In either case talking about needing money can be very hard. Why is this? Continue reading “Why is it so hard to talk about needing money?”→
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): Continue reading “Banks want to lend you money (really they do)”→
We recently completed a mortgage for client that was refinancing his property to get a larger mortgage and use the additional funds for investment purposes. The bank that he was looking to pay out had a clause in their mortgage that basically read “you cannot payout your mortgage unless the property has been sold”. This means that the bank would not allow the client to payout the mortgage unless he produced a sale agreement showing that someone unrelated to him was purchasing the property. Needless to say the client was extremely upset and couldn’t believe this clause was not explained to him when he took the mortgage.
What do you think? Generally speaking, is Canada risk adverse? Many of my recent blog entries have detailed different aspects of Canadian banks and lenders being adverse to any kind of default risk which may have served us well during the last downturn but today may be responsible for minimal economic growth within the small business market. I appreciate that the TSX has demonstrated that it can raise risk money for oil and gas but what about other industries? Is there a general sense of “no risk here please” in Canada?
“I own a business and we need some money, can you help?”
“What do you need the money for?”
“Oh lots of things…”
“How long do you need the money for?”
“Maybe 6 months to a year”
“How will you pay it back”
“Well we are having a really good year and just seem to be a little short so we need to borrow some money to get over the hump”
This is the most common conversation I have with small businesses who are looking to borrow money. They do not always know exactly why they need money and are not able to articulate how they are going to pay it back. The most popular business loan request we get is for a business line of credit. The problem is that a business line of credit usually means “working capital” (see blog here). Working capital (and lines of credit) are very difficult to get.
I feel stirred having read this article in the National Post yesterday (Scotiabank’s outgoing CEO Rick Waugh: Customers may not like us but they feel comfortable and safe) for several reasons. The headline certainly grabbed my attention because being proud of customers not liking you but feeling comfortable and safe seems to suggest that our banking system is lacking something that every other business I know desperately needs…an attitude that customers DO like them as well as feeling comfortable with their service. If you read the article you might note that the outgoing CEO has been with Scotia for more than (yes more than) 40 years. The incoming CEO has been with Scotia for 30 years. Hopefully I don’t need to point out the obvious but when you have people that have been in one environment for that long it would be reasonable to conclude that their ability to offer new perspective is significantly hindered by their lack of exposure to other environments and ideas. Continue reading “Imagine if banks really understood their value”→
Sarah Lacy of PandoDaily holds fireside chats with various people involved in the tech sector and at the end of each interview asks the question “What is one thing you believe that no one else does?” This question provides insight into the person being interviewed and also makes for great conversation (see here for the fireside chats). Given what I do each day and the conversations I have about banks, lenders, debt, cash flow, businesses and people needing money, etc. I thought my answer might make for an interesting blog post. Continue reading “What’s the one thing you believe that no one else does?”→
CNN Money posted an article today titled “BofA considers account that puts an end to overdrafts” which I think is a brilliant idea. For those of you who have not been following the overdraft issue it may be difficult to appreciate this potential move by B of A but trust me when I say that this is a move in the right direction. Banks earn money when people go into their overdraft by charging a flat fee per instance or per month. The fees can be a few dollars per instance to a monthly charge of up to $5.00 in additional to interest rates that can run up to 21.0% per year. This may not seem like a lot of money but across the portfolio of accounts that a bank would have this revenue can quickly add up. Continue reading “This won’t make me popular but it makes sense”→