Marketlend Academy: Why not give an SME more money than it needs?
Listen to CEO and founder of Marketlend, Leo Tyndall, discuss the balance needed in borrowing and investing to ensure both parties are satisfied. If you want to read the full transcript, please see below.
Well, ’cause they’re gonna have to pay a rate for money sitting in a bank. They’re going to pay the unutilized fee, which is typically 7% per annum, and they’ll be paying that fee whilst the money is not being used. And the reason they’re paying that fee is the investor has actually given the full commitment to the money, and he’s actually placed the money in the bank account saying, “You can use it whenever you want.”
However, you need to get valid invoices, obviously. And in this case, if we turn around and we have too large a limit, they just won’t utilize the facility and it’ll become a cost for them. So what we do is, we look at the fact that we don’t want a situation where the investor’s not getting the return that they expect because they’ll be saying, “Well I don’t want money sitting in the bank and earning 7%,” although these days 7% in the bank is quite a good return.
But at the same time, you don’t want the borrower saying, “Why am I paying 7% for something where that money, sure it’s a commitment but I’d rather only pay it when I use the money?” So we try to run a bit of a balance there and ensure that both parties are successfully happy in the arrangement.