Many businesses are finding it challenging to obtain business finance during COVID-19.
Shutdowns and uncertainty as to when, and how long a recovery will take, has resulted in Lenders taking a far more cautious approach.
Accessing Business Finance During COVID-19 - Uncharted Waters!
Like everyone else, Lenders are in uncharted waters.
As a result, policies have tightened, more information is required, and loans are taking longer to approve.
That said, accessing business finance during COVID-19 is still possible. Loans are still getting approved, but there are key questions Lenders want answered.
Whilst the questions vary slightly from Lender to Lender, they typically include:
What has been the impact of COVID-19 on your business and cash flow?
This is about providing the Lender with an overview as to how COVID-19 has impacted your business and its customers, suppliers etc.
For example:
- Have key suppliers have wound in their terms of trade which has placed more stress on your cashflow?
- Have you adjusted the terms you offer to your customers? What has been their response?
- Is additional financing required to fund the changed terms of trade?
- Are you experiencing supply chain issues? What has been the impact?
- Have closed borders affected your business?
- How have your employees been impacted by COVID-19?
- How has customer buying patterns changed?
- Etc.
What actions have you taken to minimise the impact?
There would be very few businesses untouched by COVID-19 and most businesses will have needed to take action to weather the storm.
For this question, it is important to be specific as to the actions taken and what the actions have, or are expected to deliver.
Apart from things like cost savings, it may include arrangements with key suppliers and/or stakeholders. Adapting to a different operating model. Generating sales via different channels (e.g. online), etc.
Conversely, if you are amongst the lucky few, and the impact of COVID-19 has been minimal – it is important to explain to the Lender why this is the case. (You may operate in an industry sector that has benefited or have contracts in place etc)
Note; if seeking finance or renewal of facilities, it is important to support your case with current financial data. (In times of uncertainty, dated financial data is not your friend! It only creates doubt in the mind of Lenders. You need current financial data.
How has COVID 19 impacted key suppliers?
For many businesses, COVID-19 has not only impacted their business, but it has also disrupted their supply chain.
If you are in this situation, it is important to explain the impact and how it is being addressed (e.g. using alternate or local suppliers etc)
What is your recovery plan?
Despite all the unknowns, this is about providing Lenders with an insight as to how the recovery will be managed and implemented in your business.
Ideally, this plan would be supported by financial projections which include both a likely case and worst-case scenarios.
In relation to the projections it is important include:
- Repayments for the loan you are seeking and other borrowings you may have
- Provision for tax and GST payments
- Assumptions on which the projections are based
What government relief have you applied for and what has been approved/received?
This should be detailed in the historical financial information and also the projections.
In relation to the projections, Lenders will be looking to see that all borrowings can be serviced and repaid, in the absence of this support going forward.
Have you accessed loan repayment relief from your existing Lenders or the Taxation Department?
Due to the extreme uncertainty that prevailed early in the COVID outbreak, many business owners took advantage of repayment deferrals offered by Lenders and the Taxation Department.
However, if they are ongoing, the questions Lenders will have are:
- How will the new loan be repaid, if the business has had to defer existing obligations?
- What will be the position when these repayments recommence?
Preparation – Know Where You Stand!
Despite the prevailing pessimism and longer lead times, finance is still getting approved. However, you need to:
The greatest extent possible, anticipate and address questions Lenders may have, before submitting the finance application. Our Pre-Lending Review can help you with this!
Know which lenders to approach for the type of finance you are seeking (they are not all the same)
If you would like to learn more about obtaining business finance during COVID-19, and the benefits of our Loan & Bankability Assessment, don’t hesitate to give me a call
