Persuasive Communication - How Audiences Decide. 2nd Edition

Types of Audience Decisions 89

When CFOs make borrowing decisions, they are most concerned about maintaining the

fi rm’s fi nancial fl exibility and good credit rating.^113 CFOs are somewhat less concerned about

transactions costs, free cash fl ows, tax advantages, or the perceptions of customers and suppli-

ers. It is no coincidence that debt fi nancing as compared to equity fi nancing is followed by

signifi cantly worse stock performance. CFOs tend to fi nance new acquisitions by debt rather

than by equity as a result of making overly optimistic predictions about the value of their newly

acquired assets.^114

The biggest borrowing decision many consumers make is the decision to get a mortgage. Mort-

gage decisions can be complex and risky even for sophisticated borrowers^115 since the terms of

mortgage loan products vary widely.^116 For example, mortgage offers can differ in terms of fi xed

interest vs. adjustable interest rates; maturity (e.g. 5, 15, or 30 years); fi nance charges and fees (e.g.,

an interest rate with points charged upfront vs. a higher rate with no points); payment structures

(e.g., a 5/1 ARM, in which the borrower pays a fi xed rate for the fi rst fi ve years after which it

adjusts annually); and other options (e.g., interest-only, in which the loan balance does not decline

with additional payments).^117

Decisions about student loans also require consumers to possess borrowing savvy. Some students

borrow too little and, as a result, underinvest in their education. Carefully calculating the return

on their college investment can help students determine the appropriate amount of debt. When

making a borrowing decision about a particular academic program at a particular school, fi nancial

advisors recommend that students use criteria such as their anticipated earnings in the future labor

market, the likelihood of their completing the program, the costs of the program, as well as the cost

of any debt they will incur.^118

The following list of questions generalizes the borrower-specifi c decision criteria identifi ed

previously and provides a starting point for predicting an expert audience’s decision criteria for any

particular borrowing decision. The list can also serve as an outline for the documents and presenta-

tions lenders produce in order to elicit borrowing decisions from potential borrowers.

• What are the loan’s interest rates and terms of repayment?


• What are its fees and transaction costs?


• What method of computing interest does it use?


• What are its restrictive covenants and penalties?


• What are its tax advantages?


• What effect will it have on my credit rating?

In addition to lenders’ answers to the previous questions, borrowers may also require benchmark

information about the offers of competing lenders as well as the terms and conditions of other

funding sources. When CFOs issue debt, they seek benchmark information about the debt levels

of other fi rms in the industry, the potential costs of bankruptcy, the relative risk of other sources of

funds, and the relative cost of other sources of funds.^119

On the following page is a student’s revision of a complex, multipage introduction to a student

loan application form. The original version was so full of information irrelevant to a borrower’s

decision criteria that even experienced fi nancial aid offi cers found it diffi cult to use. Information

that addressed the borrower’s decision criteria was especially hard to locate in the original version

due its organization under vague headings such as “General Information.” The revised version,

on the other hand, directly addresses several of the student borrower’s important decision criteria,

omits background information irrelevant to a borrowing decision, and uses descriptive headings

that speed information search.