Why not give an SME more money than it needs?
The Marketlend team are diligent in making sure borrowers are only extended a line of credit that suits their needs, and nothing more. For more on why SMEs shouldn’t borrow more money than they need, listen to CEO and founder of Marketlend, Leo Tyndall, discuss the balance in this video, or read the transcript 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.