Video on Non-institutional Lenders & Borrowing Costs
Start Transcript on Non-institutional Lenders & Borrowing Costs
There are also non-institutional lenders from whom you can borrow. In general, the cost of that money that you would be borrowing from the non-institutional lenders is going to be significantly more expensive. In other words, you’re going to be usually paying higher interest rates, higher loan fees. Sometimes that’s worth it. Sometimes you need the capital and it makes sense to incur those additional financing costs to get the capital.
This does certainly force you to consider the question, should I really be borrowing this money? Why am I borrowing the money? This is true whether we’re talking about an institutional investor, where the financing comes relatively inexpensively, or a non-institutional lender, where it may be very expensive money. In either case, there is a cost associated with borrowing that money, and you need to really look at that cost before you jump into it.
It’s easy to get into a mentality of feeling a desperate need for cash and wanting to satisfy that need, come what may, because, “Man, I got to make payable right now.” That’s a feeling that business owners can identify with. While I appreciate the urgency that exists sometimes, it also needs to be a measured and reasonable decision that you’re making to borrow money. You need to look at the costs of borrowing. The costs of borrowing are not strictly financial. There is actually quite a psychological toll that borrowing can put on you, because you now have this obligation, this creditor, who is expecting repayment. Something you need to think about, and it makes sense to discuss that with your trusted advisers.