Credit is Not a Four-Letter Word

Credit is Not a Four-Letter Word

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The challenging global economic environment of the past few years has created some negative perceptions of credit, with many business owners developing an unjustified fear of finance facilities and others assuming that it is no longer possible to obtain credit of any sort from their banks.

According to Sanjeev Orie, head of Business Acquisitions for First National Bank (FNB), these perceptions are not only incorrect, they also have the potential to severely limit the growth and financial security of businesses, particularly those in the small and medium enterprise categories.

“When correctly and prudently managed, credit is still a strong business ally, particularly given the gearing and cash flow benefits it can afford them,” Orie explains, “but there seems to be a widespread opinion amongst business owners that it is safer to struggle financially from month to month than it is to utilise a credit facility to secure lasting business stabilisation and growth.”

Using available facilities

Orie points to the lack of utilisation of available credit facilities – particularly overdrafts – by FNB business clients as evidence of this fear. “We routinely score each of our business banking clients for an overdraft facility, and while most of these qualify for the credit, around 20% typically take it up,” he says, “but what’s more telling about the general aversion to credit by businesses is the fact that of those clients who accept the overdraft facility, only about 40% actually ever make use of it.”

According to Orie, while the so-called credit crunch did little to enhance the reputation of credit as a business enabler, the subsequent over-tightening of credit assessment processes by financial institutions may have had an even more negative effect. “At FNB, we have recognised the limiting effect that this combination of a fear of credit and the perception that it is impossible to access is having on our business clients,” he says, “and we are working hard to change these perceptions and allay the fears, for the benefit of both our clients and our own business.”

The value of well-managed credit

Orie explains that FNB’s point of departure in this regard has been to try and educate its clients about the value of well-managed credit as a business tool and make them aware that obtaining credit for their business operations is not the hurdle that they may perceive it to be.

“Based on our belief that the correct approach to business credit assessment is one that appropriately balances system-driven scoring and human judgement, FNB never simply plugs figures into a computer to deliver a response to a finance application,” he explains, “instead at least 20% to 30% of our scoring process involves human intervention and assessment by qualified credit professionals, what we call a judgemental process.”

Orie is adamant that this human touch is changing the perceptions of credit availability and usefulness amongst FNB business clients. “By affording credit applicants the opportunity to back up their applications or answer any questions our credit assessors may have about their business or financial figures, the accuracy of the scoring process is significantly enhanced,” he points out, that FNB has the opportunity to build relationships with its clients, offer valuable financial and business advice, and limit the risk taken on by the bank itself.

Bad debt ratio good

It’s an approach that seems to be working. Despite relying less on purely objective, system-based credit scoring, FNB’s bad debt and default ratios for its business customers is still well within its accepted tolerance limits and planned for amounts in the industry. Orie is adamant that this is the direct result of FNB’s commitment to offer its clients as much help and advice as it can to secure their business success.

“By educating our clients on the benefits and appropriate use of credit, and then offering them the best possible chance of securing such credit, we maximise the potential of their businesses to achieve sustainable success,” he concludes, “and when you get down to it, partnering with its business clients to ensure their success is really the best way any bank has of making sure it’s credit facilities are ultimately repaid.”

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