Business Models & Video Guides To Using Them
There are several common business models used by lenders to assess a company’s ability to borrow. These models are not about affordability but about general risk, stability and an ability to manage the business going forward. For a lender risk is more than financial.
If the borrowing business can gain an understanding of the common models used by commercial lenders then they can be more readily prepared. Some of the models, like SWOT, are very common others are rather less used.
There is no need to use every business model going as they do overlap. However, it is well worth using one model you prefer and getting it right. Remember that these business models are about identifying and addressing risk. Every business has risk, if you complete one of these models and have identified no risk or weakness then you are missing something or being too certain. Knowing about your weaknesses is a strength, only knowing your strengths is a weakness.
The Porter analysis, also known as Porter’s Five Forces. This model is popular with many commercial lenders, it looks at 5 key impact areas within a business;
- Supplier Risk
- Buyer Risk
- New Entrants
- Substitute product
The short video covers how each of these impact areas should be viewed and assessed. Some people use the Porter Model and attach a score to each section, scoring the level of risk in categories of -9,-6,-3,0,+3,+6 or +9 depending on whether there is a real threat, down to neutral or if there is a real area of strength. It is disputed whether scoring each section adds benefit, will leave that one up to you.
SWOT – Strengths, Weaknesses, Opportunities & Threats
SWOT is one of the most common business models. The problem with common use is that the SWOT model is misunderstood or completed too quickly for it to be any real benefit. Pretty much every business plan will include a SWOT analysis in some form.
One of the big misunderstandings with SWOT is that business owners think it applies to their business. SWOT applies to different parts of the same business, each product, department, business section or the company as a whole could have a different SWOT analysis. Strengths & Weaknesses are happening now, Opportunities & Threats are future risks. Each of the sections of a SWOT analysis link to each other, as explained in the video guide.
LePEST Business Model
The LePEST model is rarely seen these days although it is probably more applicable today than ever before. LePEST stands for Legal, Political, Economic, Social and Technological. These risk areas are more prevalent today then ever before, with more focus of data security as well as corporate responsibility, not forgetting the world of social media and how all these areas combine to generate business risk.
Whilst the model is not commonly used by businesses, it covers areas that a lender will look at as part of their lending assessment. The LePEST areas covered are often missed in other business analysis templates, which is why we like this model and often suggest it is used prior to applying for commercial finance.
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