Businesses Reduce Risk Through Choice of Finance

Reducing risk starts with your choice of financier, the way lending is structured, and the security which is provided. For example, if you want some machinery or a vehicle, you could obtain a loan secured by a mortgage over real estate, or you could give the financier a charge over all the assets of the business trading entity. Equally, you could go to a specialist equipment financier and obtain the loan using only the equipment or vehicle itself as security.

If long-term funding is needed, you have a choice of financiers who require regular or scheduled principal repayment and financiers who are happy for you to only pay the loan interest.

Both approaches have associated risks, but the risks associated with one of the options could be more tolerable for your situation. Rands Advisory Group can assist you in obtaining the right finance for you or your business.

Understand the Lender’s Security and Your Risks

Lower-cost financiers tend to lend money only if you provide security. It can, therefore, be very difficult to protect your assets from them. Even so, there are measures you can take to limit your risk.

Personal Guarantees

Personal guarantee of business borrowings is an area where risk can be reduced or eliminated. Some borrowers obtain smaller amounts from a number of lenders rather than a larger facility from a single lender. This strategy also has associated risks, but they may be preferable in some situations.

Some borrowers split their lenders between those that fund privately owned assets and those that fund business assets. The separation of personal and business assets can reduce the risk that a lender to the business could sell private assets.

Working with Lenders

Financiers normally continue to provide or allow lending facilities while they have confidence that you will meet future interest and principal repayment obligations. One risk management strategy is therefore obvious: provide the financier with reasons to continue having that confidence.

We can help you provide prompt required reporting to your financier and help it gain a better understanding of the business and its performance.