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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?

About the Author
Linda Keith CPA is an expert in credit risk readiness and credit analysis. She trains banks and credit unions throughout the United States, both in-house and in open-enrollment sessions, on Tax Return and Financial Statement Analysis. She is in the trenches with lenders, analysts and underwriters helping them say "yes" to good loans. Creator of the Tax Return Analysis Virtual Classroom at, she speaks at banking associations on risk management, lending and director finance topics.