Business Loans: All in or spread it around?

Posted Tuesday, June 16, 2015 Comments (0)

Many small business borrowers often ask me this question: should I source all my business lending from the one lending institution, or should I spread my lending around various lenders? It’s a great question, and there are pros and cons to both options. Below I examine these in further detail. 

All in – all my business lending with one lender 

It’s very easy to put all your business lending with one lender. The positives of having one lender is that banks offer a ‘one stop shop’ when it comes to business lending: vehicle loans, equipment finance, property loans and business overdrafts, all in the one place. One call to one lender and you can get more often than not source the business finance you need – that is convenient and saves time. Another positive to having one lender is that often a lender can ‘stretch’ a little to service the lending needs of an existing customer. The lender knows you as a borrower, and is happy to push the boundaries a little bit to accommodate what you want, more so than they would for a new-to-lender borrower where there is no past relationship. 

There are two major negatives in having all your business lending with one lender. The first is that with one lender, you are not always guaranteed to be getting the best deal in the marketplace. A lender’s pricing competitiveness on various business loans varies regularly. One lender may have the best overdraft rate one month, but may not be competitive the next month. It can be time-consuming constantly researching the best lending rates in the marketplace, and requesting that your lender match or beat these rates. The other negative in having all your business lending with one lender is in the instance that your business undergoes difficult times. Your lender may suddenly ‘turn off the taps’- leaving you with no access to credit, the lifeblood of any business. 

Spread it around – segregate my business lending amongst different lenders 

The positives of spreading your lending between different lenders are that your lending is diversified through different lenders, meaning that you have access multiple sources of loan capital at any one time. This further means that your lending is segregated, so if one part of your business falls into difficulty, then it means that you can still have access to lending capital from your other lending relationships. A second positive is that by maintaining multiple lending relationships, this helps to ‘keep the banks honest’, as the bank knows that you have an alternate lending relationship and wants to ensure that they give you a competitive product, so you don’t move your business to the rival bank. 

The negatives of segregating your business lending are that it can take time to research and find the best lending rates, and to develop a relationship with each lender. With multiple lenders, you are giving up the convenience of being able to call one person or company to arrange finance for your business – arranging finance may take more time. One potential mitigant to this issue is to develop a relationship with a broker – it will be the broker’s responsibility to maintain multiple lending relationship; not yours. 

My view 

My personal view on business lending is fairly simple: diversify whenever you can. Having said this, I completely understand that there are times where borrowers have to put all their lending in with one lender. If you do have all your business lending with one lender, my advice is to keep a close watch on that relationship, and look for opportunities to segregate your lending where possible. Over the years of arranging business finance I have seen many times where an asset segregation strategy would have benefited a borrower, both in terms of being able to access better lending products, and in instances where a lending relationship has soured and a lender has declined to offer further credit. If segregating your lending is of interest, I recommend you call your finance broker. 

Jordan W Birchall is a Partner at Balmain Commercial Brisbane, specialising in sourcing investment and development finance loans up to $3 million for property investors and developers in South East Queensland. 

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