By Ross Martin, Management Consultant at Hive Business
Did you ever let your car insurance renew without shopping around? Easy to do, but silly. When we miss these opportunities to play the market to our advantage we know we’re losing out. Isn’t it curious, then, that areas of the financial market seem immune to these forces?
The elephant in the room is finance itself. When faced with cashflow issues, for instance, the majority of business owners only give themselves a week to secure finance and then commit a single hour to researching lenders. Incredibly, 80% of them go on to approach just one provider. This is possibly why, despite pulling back from small business lending, the Big Four banks still control 85% of the market.
My experience is that dentists primarily want funding when they are buying a practice, and this tends to be using an intermediary such as their accountant or a broker, which obviously helps. Later, if they borrow again, when funds need to be refinanced or additional sites are being considered, what tends to happen is that they go with their existing lender for ‘ease’.
Humans are lazy and no doubt the availability heuristic is at work here, prioritising the most easily accessible information in the dentist’s mind: “I know that bank so I’ll use it again.” Perhaps, too, a lack of time, thanks to bad planning. The path of least resistance looks appealing when you’re out of time and the short term objective of getting a loan approved takes prominence. The medium and long term considerations of how the terms of the loan are going to affect your business, however, are usually more important.
Can a lazy approach to finance ever do well for you? It’s unlikely — just as unlikely as if you renew with the same insurer, and we all intrinsically know this. That great rate you got five or 10 years ago was part of a portfolio of financial products that is long gone. The lender may still have products that suit you, but you shouldn’t assume that just because you got the best rate from them last time it will happen again. You may remember that RBS, for example, was prominent in dentistry. Now it is pushing customers away.
You might be tempted to assume, too, that because they know you and your situation you will be at an advantage instead of starting off cold with a new provider. Maybe. But they will still want to financially profile you, just like any other lender, so what is that familiarity really worth? In fact, you are no longer the same prospect. Now you have several years of trading and debt servicing under your belt so you are less risky. Use this to your advantage and shop around, and contact us if you wish to leverage our relationship with the best banks.