Common Borrowing Mistakes

“Ah Borrow - But Can I Really Pay Back Tomorrow?”

In the wake of the devastation that Covid-19 related restrictions have caused to many businesses and some entire sectors of the economy, like many governments, the government of Trinidad and Tobago and as an off shoot the banks have provided concessions for the acquisition of loans. These include, but are not limited to moratoriums, lending rate reductions, Interest Rate reductions, bank reserve reductions and straight cash injections.

This opens the door for businesses to access much needed funding and crucial respite from making payments. This gives ailing businesses the chance to recover, and healthy businesses an opportunity for growth.

While covid-19 has stripped away so much that we held dear, opportunities have sprung from the crisis. Now that we are free (however unwillingly) from the distractions of carnival, it is a good time to take a look at the options on the table and assess our own readiness to make the most of them.

For businesses that accurately assess their true position and spend the loan amount judiciously, a loan can be a lifeline or a launch pad into bigger profits. For those who misjudge their ability to repay or spend freely, forgetting that the sudden boost in their bank account has to be repaid – it can mean financial disaster.

How do you know you can handle a loan?

1. Assess your statements
   Regardless of the size of your business, start where the banks start – with your bank and financial statements. These statements, when completed diligently, give you an accurate reflection of where your business is truly at. It tells you what you own, what you owe and how much money your company really makes. These three basic tenants, drawn from your balance sheet, income statement, fixed asset register, and other records are the basis for any bank or investor approval. Going through these documents, preferably with a trained accountant, can help you honestly assess whether a loan would be a help or a hindrance to your success. Whatever the numbers tell you, believe them.


2. Assess the way your business runs
   Your financial statements are a good start, but they don’t give you the full picture. You also need to take time to regularly check the efficiency of your processes and procedures. A good assessment of the way your business works, and of the likely success of loan-driven expansion, gives you the opportunity to repair issues like poorly trained staff or unnecessary overheads that can jeopardize your ability to repay a loan and limit the benefits you receive from a loan. In fact, a sound assessment may even reveal that your issues can be fixed without a loan!


3. Assess which facility fits you best
   A review of your business procedures and financial statements has given you the green light to move ahead. Your next step is to learn about the different types of loans and lines of credit that are available to you. All loans are not created equal, and to get the most benefit, you need to find the one that best suits your needs. For instance, if you are trying to be more competitive by offering your customers a longer period to pay or just get supply ease, our Bankers’ Acceptance and Letters of Credit facilities respectively, will provide a lot more value than other facilities.


4. Work your way up to bigger loans
   It can be difficult for small businesses and new enterprises to get long-term financing for large sums like a mortgage. To overcome this resistance, you need to demonstrate stability and a solid track record of repaying debts. A short-term loan, project financing or an overdraft facility, used wisely, can help you build a relationship with your bank and build up your credit rating. The key here is to use these options wisely. Financing inventory (for which there is an easily identifiable demand), financing an ongoing project (with a reliable payee) and short term cash flow issues (which are unexpected emergencies and not systemic problems) are some solid options for building good credit and a solid relationship with the bank.


5. Build Equity and Collateral Base
   For most loans you are going to need some Equity, and the bigger the loan, the more skin you’re going to need to have in the game. This puts you in a better position to be able to keep up your payments if plans should go awry (remember 2020?). It also shows discipline in your business practices, which is a good indicator to the bank that you’ll do your best to keep up your payments. Equity can be savings as well as other investments into your business such as equipment and property. These can be used as collateral as well along with other business-owned assets. Collateral is another factor that determines loan success, however, approach new business purchases with caution. Only buy when you have a reliable, sustained demand. Making big purchases without the demand to make it profitable (and repay your debt) can turn an asset into a liability lightening fast. So, if you must squint to see the true equity figure, on your balance sheet, it’s time to start saving and making considered investments into your business.

The right loan at the right time can breathe new life into your business. Take the time today to assess your financials and your procedures, and if you’re not quite ready, take the time to get ready. If you are ready, then take a look at our suite of corporate loans and credit facilities to see what best suits your needs. Current government concessions make now a great time to get the financing your business needs – but only if you are ready. See you when you’re ready!