When applying for a business loan, there are steps you can take to avoid unnecessary delays and frustration.
Whilst economists are painting an optimistic outlook for the Australian economy, Lenders are adopting a more cautious approach, seeking detailed information and taking longer to approve borrowings.
Against this background, there are steps business owners can take to make the process easier:
Applying for a Business Loan - Don’t Delay!
Our experience is that business owners will avoid borrowing money unless they need it.
Whilst this is a prudent approach, applying for a business loan should not be delayed until the monies are urgently needed.
Apart from creating cash flow issues and stress, it can raise doubts in the minds of Lenders. “How good is their management if they left it until now to apply?”
In the current environment, where it is taking longer for finance to be approved, the sooner you start the process, the better.
Outdated Financial Information
When applying for a business loan, it is critical to have current financial information. This would include:
- Profit and Loss, Balance Sheet and tax returns for the 2018 to 2020 financial years.
- Management Accounts that show the performance of the business in the current financial year
- Current aged debtor, creditor and stock listings
(Given the impact of COVID-19, many businesses will also be asked to provide financial projections at least for the forthcoming 12 months that show the ability to service all borrowings).
Whilst many business owners get frustrated with the focus on financials by Lenders, it is worth remembering they are the prism through which lenders understand a business and interpret performance.
Applying for a Business Loan - Defined Purpose
Another factor that is important when applying for a business loan is to clearly outline how the funds will be used. That is; what is the loan purpose?
Generally, Lenders are not comfortable approving loans for undefined purposes.
The reason Lenders focus on the borrowing purpose is that it affects their view of the risk involved, it can also flow through to:
- The term over which the borrowings need to be repaid
- Pricing
- Terms and conditions
Not Addressing Issues That May Concern Lenders
Prior to applying for a business loan, it is important to give thought to issues related to your business, or industry, that may concern Lenders.
To the greatest extent possible, address these issues before submitting the loan application.
If this is not possible, then explain why something occurred and how it is to be remedied or mitigated.
The worst thing you can do is try to hide the issue, hoping that the Lenders will not find out. Reality is they will!
If you have not told them something material, it will seriously impair the chances of the loan being approved.
This is about having a “game plan”, being prepared, and is why, in part, we developed our Loan and Bankability Assessment.
Our belief is that, before submitting any loan application you need to know:
- Where you stand – likely pricing, terms and conditions
- What needs to change to improve your negotiating power
Believing all Lenders are the Same!
A mistake business owner can make believing if their current Lender will not approve the finance, no one will.
The policies and appetite to lend can vary widely depending on the institution’s view of the market and their strategy at a particular point in time.
Today, there are also many niche players in the market targeting particular types of lending and/or industry segments.
Lenders are no different to any other supplier to your business. It is therefore important when seeking finance to understand what is available in the market before committing one way or another.
You may be told it is a great offer – but compared to what? If you don’t test the market, you have no actual basis for comparison.
This does not mean you necessarily need to change Lenders, but ensuring the finance package you accept is truly market competitive
Summary
There is no denying that at present it is taking longer for finance to be approved.
This will hopefully change as more evidence of a broad-based economic recovery emerges.
However, as outlined, there are practical steps business owners can take to more readily access the finance they need
If you would like to learn more don’t hesitate to give me a call
