Financing mixes are similar to balanced nutrition. Anyone who only eats lettuce lives just as unhealthily as a meat fanatic. The right mix determines both short-term well-being and long-term success. In the case of financing, this means specifically: You should differentiate your financing instruments per se and not be satisfied with a conventional bank loan, and you should also consult various financing providers.
Pork chop is in Nogue
Now many friends of the daily pork chop would probably reply to me that they are in good health and extremely satisfied with their lifestyle. However, this does not change the fact that they have been secretly dependent for a long time – on the daily meat consumption or just a single financial service provider. The dependency simply has no immediate effects, which is why it often goes unnoticed until serious damage can no longer be avoided.
The Germans are dependent
What sounds like a grotesquely constructed story is a sad reality in Germany’s corporate finance sector: The study of a German finance platform comes to the conclusion that 72 percent of German companies have only one or two bank details. Sounds unspectacular, but it favors financial sclerosis, which, if things go bad, can lead to a heart attack in your company. The thesis of the existing dependence on the house bank is supported by a study by the Federal Association of Free Consultants V., which states that only 23 percent of SMEs in Germany are independent of their main bank.
Why are dependencies so dangerous?
Many dependencies are initially invisible – they do not appear in economically comfortable situations. As long as you do not run a marathon, you will not notice anything about your constitution (which has been the result of years of sideburn consumption), and as long as we continue to benefit from low interest rates in Europe, there is supposedly no reason to question the house bank. Assuming that interest rates in Europe rose significantly in the next few years (which almost all experts now assume), then financing would become more expensive – for some providers more, for others less.
The good old house bank has had its day
If silent dependencies are discovered, the good old house bank quickly turns out to be a loan shark and you will be annoyed by your lack of foresight. Apart from the obvious dependency, there are also measurable disadvantages: poorer financing conditions. For many companies, this is not only annoying, but above all one thing: a threat to their existence. A survey by the credit agency Creditreform found that 15.4 percent of German companies are already unable to service the interest due on bank loans. Over the next few years, this value could rise dramatically due to rising interest rates.
Dissatisfaction with house bank widespread
Particularly paradoxical: many entrepreneurs are also dissatisfied with their house bank – according to a Forsa survey commissioned by Lite Lender Bank, every seventh German small business owner. The result is surprising, entrepreneurs currently have more financing options than ever before due to globalization and the rise of FinTech. Once the bank details have been set up, many bureaucratic lazy entrepreneurs seem to put up with inconveniences with their house bank – unfortunately.
The result is monthly avoidable additional costs that damage liquidity and, in the medium term, creditworthiness.
What does a healthy financing mix look like?
There is no universal recipe for successful corporate finance. In principle, it is important that you have at least two bank details in order to strengthen your negotiating position. But that’s not enough: A large number of companies finance a large part of their current business via current account lines, although there are often cheaper alternatives. Finetrading, for example, is suitable for purchasing goods: Your goods purchases are pre-financed by an intermediary at attractive conditions, and you receive extended payment terms. Companies that have outstanding accounts receivable from customers can use factoring to minimize outstanding debts and generate immediate liquidity. Anyone who owns large fixed assets can capitalize them in the course of a sale-and-lease-back without having to accept any restrictions in the operating business.
Provider comparison is elementary for the success of your company
In addition to diversifying the portfolio, a profound comparison of providers is essential for a successful financing structure. Experience has shown that loan interest rates can vary by up to 5 percent depending on the provider, even with a similar starting position – admittedly, these are astronomical values, but even slight interest rate fluctuations can have a significant impact on your liquidity. Numerous online providers who offer automated financing rankings have also recognized this relevance: However, these should be treated with caution, since hidden costs are often hidden behind the glossy facades: processing fees, mandatory residual debt insurance, prepayment penalties for special repayments – the list of cost traps is long, Alternatively,
In the hope that you have created an awareness of the problems of silent dependencies and one-sided financing portfolios, I now dedicate myself again to my pork chop – but with a side dish – maybe the marathon will work again.