What frugal business borrowers and ex-communist countries have in common

Business owners who have successfully weathered a downturn often are a bit frugal by nature.

• Maybe they are not taking every possible dime out of their company
• Perhaps they live on less than they earn
• They may be better able to let go of stress and exude calm to their employees, customers and bankers

Is frugal a disadvantage?

And yet, sometimes it seems that the frugal, more cautious and conservative business owners put themselves at a disadvantage when it comes to the way bankers think.

How so?

I know some lenders, when looking at the personal cashflow of an owner/guarantor, want to count only what the business owner actually paid themselves from their business. This is true even if they left more money in the business than your target debt-coverage-ratio requires. Yes, this is conservative on the bankers part.

Or is it?

By counting less in favor of a careful business owner and counting all in favor of a business owner who leaves less cushion in the business, aren't you favoring a less careful borrower for a loan?

I think you are.

Frugal business borrowers and ex-communist countries

In the February 28th, 2009 briefing on ex-communist economies, 'The Economist' magazine states: "Ex-communist countries are more resilient and flexible than countries with happier histories. They have had to be, and it may stand them in good stead now."

I would add that business owners who have taken their business successfully through a downturn are more likely to be frugal personally and also more resilient and flexible than business owners with happier (less long-lived) business histories.

What do you think?