Not every lender is in the business of growing entrepreneurs, the way that Merchant Capital is. Unfortunately, when it comes to making an offer, many lenders don't have your best interests at heart. With reckless lending and overindebtedness becoming more prevalent, it’s crucial for business owners to critically assess who they do business with. So, let’s consider what factors you should be aware of when you’re looking for a working capital provider.

What is irresponsible lending?

A lender who seeks only to leave you over-indebted is one to worry about. You should also be wary of any lender who makes no attempt to gauge if you actually understand the agreement you’re entering into. In addition to this, lenders who are too eager to provide you with funding without conducting any thorough assessments to accurately determine whether you can honour your repayments, are practising irresponsible lending. This will only result in you owing an amount you can’t easily pay back, forcing you into a cycle of debt. You should also be wary of lenders who are only too happy to give you more than you asked for, even after finding out that you’ve exhausted other options (like bank loans). All these reasons are a major cause for concern and are clues that their funding is risky.

An interesting example is of a UK man, who not only overstated his income but also had poor knowledge about the lending product he was taking. He approached nine different lenders and eventually got funding. Obviously had proper credit checks been done, the lenders would have found that he was never in a position to ever qualify for their funds. Sadly, occurrences like these are all too common, and so it relies on the merchant to do research and watch out for signs of unhealthy lending practices.

At Merchant Capital, we conduct thorough personal and business credit checks, and we examine bank statements and other important documentation to provide you with an offer we know you can afford to pay back. The differentiating factor is our Pay-As-You-Trade model which ensures that your repayments never surpass your income, and in this way, we make it our business to ensure that the offer you receive from us is both considered and realistic.

Does the lender conduct themselves ethically?

It would be beneficial to know if the company you’re lending from conducts itself in a way that won’t harm you or your business long-term. So make sure you understand if your prospective lender belongs to any regulatory group or association that will hold them accountable should they misstep. Also ensure you find out if they can offer you any amount or interest rate, or if this is regulated in some way.

It’s also beneficial to stay away from lenders who are eager to enable loan stacking. This is when your lender is aware of your multiple loans with other institutions yet is still eager to give you funding.  Ask yourself why a company would knowingly give you funds when you’re not done settling your facilities with other lenders? How do they think you’ll pay them back and will this really help your business?

Merchant Capital is a member of the South African SME Finance Association, SASFA. The unsecured lending space is largely unregulated, but SASFA created a code of conduct that all members adhere to with important guidelines which ensure ethical and sustainable lending structures. This code of conduct aims to help business owners understand the various products that are available to them, which best practice principles lenders should abide by and what risk assessments a business owner should expect when dealing with a reputable lender.

Questions to ask yourself when choosing a lending partner:

Is my lender a member of a reputable regulatory body?
Does my lender request historical turnover records (bank statements etc.) to properly understand my finances?
Does my lender consider my cash flow health and profit margins when offering me funding?
Does my lender do the relevant credit and supplier checks?
Does my lender have a proven track record in the industry?
Do I believe that my lender has my business's best interests at heart?
Is my lender transparent about what my funding facility will cost overall?
Does my lender offer repayment options that suit my business's income trends?

The Bottom Line

We understand that lending is an emotional undertaking and that the instinct is to jump at any opportunity to acquire funding. But there are many factors to think about beyond the cash, and one has to really consider the relationship you are entering into with the lender itself. Merchant Capital cares deeply about how you grow your business. Our lending practices are sustainable and transparent and are structured in optimal ways to help you and your business thrive long term. So to begin growing your business with the right lender, contact Merchant Capital today. 

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