In the good old days, when borrowing was just a matter of guessing the answer to a series of questions, most borrowers knew the right answer to ‘What do you want the money for?‘. Just as you knew the right answer when your doctor asked ‘how much do you drink?‘‘ was ‘2 units a day‘, so for personal loans the right answer was ‘home improvements‘, whilst for business loans it was ‘marketing‘ or ‘business development‘.
For better of for worse, times have changed ‘what is the money for?‘ is now one of the most important parts of the underwriting process.
This goes for beyond the application, or what you are going to spend it on and into the important question of what the outcome will be – ultimately the question hidden behind the one you see is ‘how are you going to repay us?‘
Sometimes, the true and short answer is obvious – if you are looking for HP on tooling, then fairly obviously the money is to buy tooling. The bigger question remains though – ‘what will be the impact of that tooling on your cashflow?‘ – both now and in the future.
Even if the lender doesn’t ask, these are serious questions to ask yourself believe not or not, you and the lender actually want the same outcome.
Borrowing money alone is never the solution to a problem – though it may be part of the solution, or the bridge to a solution.
Talking of problems – as we sometimes must, vague or evasive answers such as business development will often be interpreted in a negative way, the implication being that the money will actually go to pay off another creditor or to get HMRC off your back.
Many of the loans we make are for exactly this purpose – banks restricting overdrafts or pressure from HMRC. These ‘negative’ applications of funds needn’t be a problem, what a lender needs to know is what actions have been taken – or are being taken – to ensure that they don’t reoccur.
Just as lying to your doctor about your alcohol intake won’t save your liver, being straight with us – and yourself – about your financial circumstances will both build trust and increase the likelihood of a positive outcome.