There is a range of finance options available to small business owners but securing the right loan for your business can still be quite a challenge. Often the difference between a successful and an unsuccessful application is knowing what supporting documentation to provide when you apply. The key to securing a loan is understanding that lenders approve applications they assess as presenting minimal risk. Your job is to show the business as stable, well managed and able to meet its financial commitments.
All lenders require the same basic information. Your first step is to collate all the information to be included in the application.
You will need to be able to answer the following questions:
› How much do you want?
› How much do you make?
› How will you pay it back?
› How much are you worth?
How much do you want?
You need to know exactly how much you want to borrow and how the funds will be used. Be realistic – a lender will not approve an amount unless the business’s financial records show it has the capacity to meet the repayments. The amount a finance company is willing to lend will also depend on the type of security you are willing to provide.
How much do you make?
You will need accurate, up to date financial and taxation records to support your application. These are used to show you have the capacity to meet repayments. These may include:
› BAS records, financial statements, superannuation records and income tax returns for the last three years. Lenders may also check existing loan statements and bank statements to check for defaults. A lender will take your profit figure from the last three years’ financial statements and add back interest, depreciation, amortisation and income tax. This is the figure used to assess the loan.
Ensure your taxation records are current. An up to date ATO Portal is now mandatory for any loan increase or new loans.
Don’t hide any tax debts. A tax debt may raise concern but it is far better to disclose it up front. It’s a good idea to highlight any non-essential payments you could remove if necessary, eg donations and non-compulsory super. We do have lenders who will pay out ATO debt.
How will you pay it back?
Lenders always want to know how they are going to get their money back. They will frequently ask for three exit strategies. The first is usually through the repayment schedule of principal and interest. The second and third may include the sale of business assets, collection of debts or the sale of a property or guarantor’s assets.
How much are you worth?
It is important to be completely honest and transparent about your financial position. Both your business and personal history will be scrutinised, as will your credit history.
Lenders will be looking for:
Poor account conduct, eg regular overdrawing or regular cash advances on credit cards. Banks have a scoring system based on account usage.
Poor personal credit card management – paying only the minimum each month, late payments or going over your credit limit. Your ‘credit score’ is openly available for checks. Any loan enquiries made with banks and brokers. Banks will question why a client is ‘shopping around’. A quick response to requests for information. Banks may assume the worst if you are slow to respond.Having all accounts with one bank may also be viewed favourably. It shows you are not hiding anything plus banks can more easily check account conduct if required.
A business plan adds credibility
Including a business plan shows a lender you have a plan for the future and a strategy for how to achieve it. Monthly profit and loss and cash flow forecasts for the next year provide further reassurance.
Next steps
Once you have prepared all the required documentation a commercial broker can help you determine the best type of loan for your circumstances and identify suitable lenders.
