- In a modern entrepreneurial economy business to business lending needs to be approached differently. Convention needs to be challenged and entrepreneurship given space and opportunity.
- The micro enterprise today could very well be the Google of tomorrow
- Lenders need to be both intuitive as well as analytic in their assessment, one without the other could prove to be fatal.
This article focuses on 4 key lessons to enhance one’s intuition and analysis.
Lesson 1 – Reduce risk by assessing:
- Thoroughly analyse future prospects were companies have young entrepreneurial management teams which only managed through a growth phase and not downward cycles
- Be circumspect of companies with weak management information systems in today’s modern tech savvy economy
- Beware of borrowers with high risk appetite against small absolute size with preparedness to take large financial risk
- Avoid companies highly dependent on connections to make money together with the absence of a coherent business strategy
- Be wary of businesses with a low cost structure because:
- Often they lack depth of management
- They are stretched in the tough times
- Too much emphasis on trusted employees -trust does not equal competence
Lesson 2 – Be aware of key decision makers:
Management and Owners
- Intermingling of private and business assets
- Gearing above personal debt
- Family dynasties – is the next generation so skillful / hungry
Lesson 3 – Pay attention:
- to “flavor of the month” sectors – be careful with perceived internal expertise
- to forecasts for market growth particularly where there is a progressive build of expectations
- to highly leveraged companies because they are more vulnerable to smaller shocks
- to reliance on “name”
- to where you and other lenders lend
Remember – “Speed of Action” if warning signs emerge.
Lesson 4 – The detail
- Review intelligently
- Projections – a dose of scepticism might be helpful
- Devil is always in the detail but don’t lose sight of the big picture