Advice from a fintech startup: Don't borrow if you only want to stay afloat

Written by
Zachary Pestana
Last Modified on
December 19, 2023

It’s a situation that all of us have heard of or experienced personally. Without warning, times suddenly get bad for business, there’s a sudden unanticipated cash crunch. Or maybe through bad luck all the invoices will come due in only a few months time, but cash is needed now. So the business owners decide it’s time to take a loan, something to help them to stay afloat while they figure a way out.

They need help. And in their time of need we always make sure to respect their dignity, but we also make sure to advise them; “Don’t borrow if you only want to stay afloat.” Because borrowing only to stay afloat can lead to more trouble than before. Don’t do it. Don’t risk bankruptcy. Pause awhile, take a moment to think about how you are going to use the money to get more sales, or change course, then ask yourself what are the best avenues to get that money.

On average, our assessment takes us 2-4 hours, but at least half the time is spent talking our clients through their decision. Some questions we ask are simple yet clarifying ones; “What do you intend to do with the money?”, “Are you sure that you need that much?”, “Will you be able to cover the monthly repayments comfortably?”. We do this because most of the times when people come to us for help staying afloat they don’t have a plan for how to climb back into the ring. These questions don’t help us assess the eligibility of the application, but help the business owners think through their decisions. Imagine taking a loan without a plan, or rather, a plan to do more of the same e.g. close more customers or sell more goods. These are extraordinary times, they need extraordinary measures. Our questions help guide owners to understand that now is not business as usual, to come up with new ways to get back on their feet even before thinking about how a loan can help them.

Because the alternative is a business owner that blindly agrees to the terms, signs for the loan and when their usual measures continue to fail, ends up defaulting. Which leads to them owing money, and maybe even eventually declaring bankruptcy. This is clearly not a happy ending for any of us. This is what motivates us to help business owners find a better solution than simply borrowing, or doing so without a plan.For every business out there, there are generally 3 ways to get the cash flowing again.

  • Borrow to cover costs
  • Borrow to buy inventory or expand
  • Cashing in invoices

While there are other more esoteric versions of finance available, they have more restrictive criteria, generally leaving only these options available to most SMEs out there.When borrowing to cover costs, this need is usually met by term/working capital loans. The lender makes an assessment of the credit worthiness of the borrower then extends a loan at an interest rate that they are comfortable with. This is generally calculated to cover the default risk while being enough that the borrower can repay it comfortably.

Borrowing to buy inventory or expand is usually covered through a mixture of term loans and inventory financing, with the caveat that inventory financing is usually restricted to goods and uses the inventory as collateral. In such cases, while a similar assessment is made, the interest rate is usually lower as the lender will have a claim on inventory that remains unsold.

Cashing in invoices, rather than waiting for customers’ invoices to come due, is a good way for businesses to sell them to cash in immediately. This is a faster, no obligation way to get cashflow, but there can be catches. Firstly, sometimes the lender only extends a portion of the invoice value, holding the remainder as collateral that they can deduct from if the customer is late in payment. Secondly, sometimes customers do not accept invoices to be sold to someone else as they do not want to deal with an unknown party.

While it is always better to borrow with a purpose e.g. funding business expansion with a term loan, given the way almost all loans work, this will come with high rates and monthly interest. And it’s not always because a term loan is preferred but often it’s also because loans are not able to support needs that do not fall within traditional metrics such as software businesses. Hence, forcing businesses to take up a term loan as those can be more flexible in their terms.

Crucially, in such cases, the assessment is done at the time of application. And if the company happens to be in trouble at that time, the result wouldn’t be a favourable one, or be enough to help the company out. So the ideal situation here is a credit line or overdraft facility that has the flexibility to support these scenarios without having to worry about heavy interest rates.After interviewing and speaking with nearly a thousand SME owners who have worked with us in the past, we knew that SMEs needed a solution specifically for them.

This is why we designed and rolled out AspireAccounts.

At its core, Aspire Accounts is a $100k Credit Line - called Drawdown - that offers clients the flexibility to draw from their credit and receive cash that they can immediately use without any fuss. It is useful for emergency situations and doesn’t require any new assessment. But as it is, we can go further to satisfy the needs of customers.

Pay Later - is a function inside Aspire Accounts that we designed to be exactly what business owners need to finance their expansion. It taps on the credit line but offers 60 days interest free. This gives business owners the boost that they need to scale to the next level and the leeway that they need to repay without incurring the interest rates that all businesses fear. And if owners pay back within the 60 days, then they would effectively have tapped on free money!

Get Paid - is the last but not least function inside Aspire Accounts - that allows businesses to cash in their invoices. All a business owner needs to do is send a Get Paid request to their client. Once the client accepts and signs up for an account, we give you, the business owner 97.1% (the fee is 2.9%) of the total outstanding invoice value, while we give your client 60 days interest free terms and undertake collection from your client. You as the business owner will have no more obligation to us.

Drawdown, Pay Later and Get Paid. These 3 functions come immediately upon signing up for an Account with us, with no obligation to use it. Any business owner can simply sign up and keep it for a rainy day. It is part of our commitment to finding innovative ways to help SMEs that are tailored specifically to your needs.And the best part of all this?It’s free.

AspireAccounts has no annual fees, no hidden charges. There is zero obligation to use it or pay for it after signing up, only pay for what you use. That is only fair.

Ultimately, SMEs and startups deserve better services than what is available today. So go ahead. Ask for more. ;)

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About the author
Zachary Pestana
is a seasoned writer in market trends and business thought leadership. With a writing history at Incorp Global, MOQdigital, and AIESEC Australia, Zachary leverages his broad range of experiences to stimulate industry conversations and engage audiences.
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