Borrowing economy

The rule of thumb is to borrow as little as possible. The more you borrow, the higher the repayment of capital and interest. If you borrow too much, you may spend a significant portion of your earnings on repayment at the expense of operating capital, earnings and business savings. You will also have to pay a larger owner’s contribution if you borrow more.

The Bank is an ethical lender and recommends economical borrowing. There are several methods to economise. Firstly, economise on new assets. If a new asset is needed, seek the best quote or an alternative asset that costs less. Secondly, reduce all unnecessary spending in your cash flow projection. Thirdly, request a range of quotations from various suppliers to ensure that you have the best possible costing.

Based on its extensive experience, the Bank may flag excessive borrowing and ask for a reduction in the amount requested. If the requested amount is too low, the Bank may ask for an increase in borrowing to cover the shortfall.