In the world of funding, financiers spend a lot of time talking about “client risk”. Yet at Balanz, we spend a lot of time talking about “financier risk”.
What is Financier Risk?
Financier risk goes to the heart of obtaining debt that is appropriate to the core funding requirement of a borrower. It comes with many levels, with each needing careful consideration by borrowers (and/or their brokers) in order to minimise the risk in a funding situation. So, to protect themselves, borrowers must determine:
- Who is the Financier?
This is a very important question, yet unfortunately a lot of borrowers do not spend enough time considering it within their haste to satisfice (yes, satisfice) their way to a debt solution.
But borrowers beware, there are many funders without balance sheets: a bit like those prototype cars without engines – they look good, but when it comes to the crunch they cannot deliver!
So borrowers should in fact be asking key questions such as: How is the financier funded? Do they have their own capital? Is it already raised, or will they seek to raise it? Is it a short-term wholesale funding solution that is subsequently sold to another lender? By taking the time to thoroughly understand the financier, a borrower can considerably reduce financier risk.
- Does the Financier Deliver In-Line with their Proposal?
A lot of comfort can be gained from seeing a financier’s proven track record. There are countless examples of financiers who seek to materially change terms at the last moment, and/or who use law firms who are not commercial in their approach to loan and security documentation – needless to say, these cause significant frustrations for borrowers. Best to avoid financiers with such habits.
- How Does the Financier Behave When There are Hiccups?
Everyone has heard of fair-weather bankers. As a borrower it is important to know how a financier is likely to behave when things get bumpy. Hints can be found in wording of their documentation – a thorough review of these can reduce financier risk.
- Are They a Flip-Flop Financier?
Will the financier turn the tap on when it suits them, yet leave borrowers (and sometimes even whole geographies) high and dry when Mummy and Daddy calls them back home….? This is obviously another important consideration when determining financier risk.
These 4 key areas should be the basis of every borrower’s fundamental analysis prior to committing to a financier, in order to minimise financier risk, and therefore ensure the best possible funding experience.
How We Approach Financier Risk at Balanz
Responsible lending is not just about ensuring the borrower is able to repay the debt – that is a baseline given (if you care about the borrower!). As a broker, it is also about ensuring you are not feeding a borrower to a charlatan or a shark. The fact that there are financiers in the market describing themselves as “loan to own” is alarming, and emphasises the need for parties (such as Balanz) to act on behalf of borrowers to thoroughly, appropriately and continuously assess financier risk.
Within Balanz, there are many different numbers we could be tracking, but we have our eyes clearly set on one number – the number of our clients in financial difficulty. We do everything we can to ensure that number is as close to zero as possible. We know it is not fun to be in financial distress, and conversely, we know the pride, joy and fun associated with doing well. Ensuring a finance partner is chosen (for borrowers) with due and appropriate consideration of financier risk is a key part of lending responsibly, and therefore is a core focus of each and every Balanz team member for ALL of our clients.
And After Choosing a Financier, What’s Next for Borrowers…?
So you’ve chosen a financier with appropriate finance risk – step 1 completed. But it doesn’t stop there. The next key question is: How should you proactively manage the risk particular to that financier?
Now that’s a whole other story…
Need help ASSESSING and/or MANAGING financier risk? Balanz can help.
Contact Edwin Jan (on Edwin.Jan@balanz.com.au or 0413 996 480)
or any of our Balanz team
Balanz – Your Partner in Business Finance
w balanz.com.au a 1/220 Boundary Street Spring Hill Qld