As with most things in life – learn the lessons of those who have gone before you.
Over my years working with businesses and lending money, I have seen a number of simple mistakes that have cost people a lot of money. To save you the cost of these, I have jotted down 5 of the most common mistakes that I have seen, along with simple yet effective suggestions to avoid them.
Mistake # 1 – DID NOT READ the loan contract or terms & conditions.
25 years ago, a home loan contract was 2 pages – these days loan contracts can be a 20-30 pages. Whilst these documents can look a bit scary, most are not nearly as bad as they look.
Avoid How? – Read the documents with a pen and mark an X beside anything you don’t understand. Check closely all of the variable parts, such as name, amount, rate, term, repayment and security etc. If you are unclear on anything – then it is vital that you ask as many clarifying questions as you need to be clear on your obligations. The most experienced and successful business people that I have dealt with have always asked the most questions!
Mistake # 2 – ASSUMED that the banker fully understood the business.
This can be an exceptionally costly mistake. Bankers today are typically time poor, with handover notes scant at best, so from a short meeting they will not be able to capture all of the important information.
Avoid How? – Consider your banker as a key supplier and put some time into educating them. Time spent putting together a kit of information will reap long term benefit. Your kit should include: brief overview of the business/history, intro of the operators, info on the current borrowing need or existing facilities, detail key supply and client details and include product brochures. This is naturally in addition to the financial info.
Mistake # 3 – ASSUMED that everything will “just happen”.
Banking transactions run the full spectrum from very easy one step actions that are actioned immediately in front of you, all the way through to a loan application which can take weeks to approve, then longer to document and may even attach to a property settlement – resulting in months from start to finish.
Avoid How? – Regardless of the transaction type, the rule of thumb is to “ask and understand”. Ask how long the process is going to take and understand the basic stage points along the way. Put dates to these and then follow up with your banker on a regular basis. Never assume that things will simply happen – and remember, you will ultimately pay for the cost of delays.
Mistake #4 – ASSUMED all banks/bankers are the same.
Ask a coffee connoisseur about coffee or a wine drinker about wine – and you will quickly hear that all coffees and all wines are NOT the same. Banks and bankers are similar in that respect, with some truly exceptional bankers out there who are skilled and experienced and deliver superior service. Similarly, not all banks deliver all services/products.
Avoid How? – As your bank/banker is an important business partner or supplier to your business, you need to find one who suites your needs and can deliver the service level you desire. Be clear on your requirements and seek out a bank that can offer these. Similarly, discuss your requirements openly with your banker so there is no confusion on expectations. Time taken to interview a banker to achieve a “good fit” will deliver dividends.
Mistake # 5 – DECIDED to buy solely on price.
Bargain deals or cut price offers can only be provided by cheapening other parts of the offering. It is important to understand that cheap will mean a compromise in service, terms or the inclusion of some restrictions.
Avoid How? – Before taking a cheap option, check what this means and make sure that it matches your requirements – otherwise, I can guarantee that the “cheap” option will become costly at some point.
By following these effective tips, you will save time and money. Naturally if you are short of time or simply want some additional support, then engage a professional to assist.
Learn from others’ mistakes and pocket the cost instead!