Disadvantage of Commodity Financing to Borrower and How to mitigate them

A lending is like a gamble.  It is like finding a needle in a bunch of chaff and the possibility is basically low without persistency. Just like in lending, you might encounter hardship gaining the approval of the financier but with your perseverance and honesty, you will be able to earn their sweetest acceptance.

Below are some of the factors of commodity financing which have a tremendous impact to the debtor. This are summarize to give you a better perception and helps you create a plan to vanquish them.

1.  Credit Payment

When the borrower failed to meet her contractual obligations, other financing institutions may not approve her application and the worst scenario is they might block her in their lists.  Borrower may fail to make payment due to other loans or bankruptcy of the business.  Principal and interest of the loan must be paid on specified dates without failing. A company with incalculable cash flow might have difficulties in paying their debts. A borrower should refrain from too many debts to meet her obligations. Credit payment became a disadvantage if and only if the debtor did not pay his obligation resulting to financier losses.

commodity-financing-headache

2. Collaterals

Upon borrowing, financiers will generally demand a certain assets to the debtor as collateral and obliged to guarantee the loan personally which might put your business assets at possible risks. When the borrower failed to make payment, the financier has the power to pull out the collateral you offered since that is included in the written agreement. Definitely, this is what the debtor has always been afraid of but if you think about it thoroughly, it is for your own sake too. This will make you work hard to protect your business by all means.

3. Requirements

Securing requirements needs some time to finish because every financing institution has different qualifications or standard. That’s the reason why some borrowers complain about securing too many requirements. Some of the requirements needs to accomplish are Valid Identification, Billing Statement, collaterals and Source of funds. At the same time, you need to have a good credit rating to get the approval of the financier. Without completing the requirements, your application might be rejected so make sure to attach complete requirements.

4. Discipline

Some people live an extravagant life if they have money or they called them a “one day millionaire”. They spent here, there and everywhere without realizing what will the future brings. So if you enter in commodity financing, you must have self-discipline and financial discipline to make repayments on time. Maintain restraint and exercise good financial judgement. Learn more about revolving your assets like investing to some other establishment which may fuel your income.

By learning the disadvantages of commodity financing, I conclude that a borrower should be honest and business minded. She must wise enough on when and where she invest her loan. She must protect it by all means by simply seeking advice, gathering data and implementing strategies wisely. Asking to some expert in business won’t harm you; instead it will make you an excellent businesswoman. An internet is also available to help you in building business strategies.

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