Responsible borrowing matters: A tale of two sides » SMEInsider

Responsible borrowing matters: A tale of two sides

Liberis CEO Rob Straathof discusses the fundamental steps that must be taken – from both the lender and borrower – to achieve a successful deal


Today, small businesses have access to more alternative finance options than ever before. But as the funding options increase, so too does the risk of unsustainable borrowing.

Responsible lending is an important part of ensuring small businesses only borrow what they can afford. At Liberis, we are committed to responsible lending, only lending when we are confident that the business can pay it back, and when we know that our product is the right option.

But equally important, is the other side of the lending relationship – responsible borrowing. For me, responsible borrowing is all about understanding your financial situation, being clear about why you are borrowing, and always keeping an eye to the future.


Assess your situation

External sources of funding are important for any small business. When provided responsibly, small business lending helps companies grow. But when considering taking out a loan it’s important for small businesses to first understand their own financial situation.

Before borrowing, every small business should ask themselves: do I have the means to take on this debt and repay the debt on time? Do I need to borrow the money, or can I generate this funding or part of this funding from internal savings? And what type of finance product is right for my business?

Answering these simple questions is essential to making responsible borrowing decisions.


Be clear about why you’re borrowing

Funding should have a purpose and it should be spent on achieving that purpose. Think about why you need to borrow and assess the commercial return to your business on your loan. Do you plan to use the funds for a one-off improvement such as new equipment which will generate increased future returns? Is the cash advance a stepping-stone, an opportunity to invest in expansion?

Like any enterprise, small businesses rely on profits to succeed. A responsible borrower should therefore be able to clearly define what the funding will be used for and how it can help contribute to future profits.


Safeguard your financial reputation

It is important to think about borrowing with a view to the future. You never know what funding your business may require in the future, so it is important to think of any borrowing as an opportunity to build or safeguard your financial reputation.

Borrowing can be a way of building or restoring a credit score. Many of our customers use our Business Cash Advance to get the funding they need, while taking advantage of the flexible repayment system to repay in line with their ability to do so.  As of May 2016, Liberis is reporting performance on cash advances to credit bureaux, which means that our customers can benefit from improved credit profiles as they pay us back successfully.

Rob Straathof is CEO of Liberis