When not to borrow

by Matthew Rock - Friday, 14th September 2007 -

The bail-out of Northern Rock brings to mind the advice of the great entrepreneur Edward Atkin.

Atkin, who built up and eventually sold his Cannon Avent business for £300m in 2005, described the following as the "most important piece of advice" an entrepreneur is ever likely to get. With the shadow of a "credit crunch" hanging over us and even the Chancellor Alistair Darling now advising more conservative attitudes towards lending, this advice is very timely:

"Only try to raise money when you can walk away if the terms are not right. This is the only way you will be offered anything like fair terms.

"When borrowing money, don't ever put your house on the line or give personal guarantees. The bank is lending to a business and making its judgment on the quality of the business and its management. It can adjust its risk-reward relationship through interest rates and performance ratios. They make very good money when they get it right.

"Whether you live in a flat in the East End or a mansion in Holland Park should have nothing to do with it.

"Personal guarantees are simply not needed. And remember, it's far easier for a bank to repossess a house than close down a business."

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