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Successful Borrowing - Get Yourself Organised

 

When you’re in business, the expression ‘never a borrower or a lender be’ just doesn’t stack up. Most businesses will at some stage need to borrow money to grow, to purchase plant or equipment, or for any number of other reasons.

When it comes time to borrow money for your business, being prepared is the key to success. Here are a few tips on getting yourself organised.

Basic requirements

One of the first things a potential lender will look at is the credit history of the business’ principals. Before you approach a lending institution, get a copy of your credit history from a credit bureau. These records often contain inaccuracies, and it’s important to clear these up before applying for a loan.

The next thing a financial institution will look at is how much you’ve invested in your business before applying for the loan, or your equity. If you haven’t invested much - or anything - banks can take this to mean you are not committed to your business and may decline your application. If, however, other credit factors measure up, this may not be a deal breaker.

On a personal level, lenders will also look at your own character. They want to know how much management experience you have, your business history and your motivation to succeed.

Paperwork

Getting ready to apply for a loan means making sure your paperwork is well and truly up to date. Unless you have a proven track record in another business, or a guarantor who’s prepared to fully back you, you need to have at least two years’ worth of financial statements before a financial institution will even look at you. Make sure you have balance sheets and income statements for at least two years’ operations, as well as personal financial statements for you and your business partners. A well articulated business plan is another document most lenders will want to see.

You also need cash flow projections to show the bank that you are capable of repaying the loan, including an explanation of the underlying assumptions on which the projections are based. An assessment of working capital (the excess of current assets over liabilities) is another document a lending institution is likely to want.

Most finance houses won’t lend without collateral or some security over which they have access in case of a loan default. This can be either business or personal assets, but make sure you get an independent assessment of the collateral you plan to use to secure your loan before you start talking to the bank.

Be professional

If a salesperson just showed up at your door with uncombed hair and their presentation material handwritten on some paper, would you take them seriously? Make an appointment with the lender - don't just show up. Compile the proposal, including all of the paperwork mentioned above, neatly in a binder and make sure you dress in business attire.

Lending options

Applying for a business loan takes attention to detail and hard work. Don’t be discouraged if you are refused by the first institution you approach - there are a variety of options when it comes to securing business finance. The more conservative institutions will require a high level of detail about your financial history, something many businesses - particularly start-ups - just can’t produce.

Less traditional financial firms are sometimes more lenient when it comes to lending money to less established businesses - but will also generally charge higher interest rates to cover the higher level of risk they are prepared to stomach.

If you’re in the market for a business loan, consider contacting a broker, who will be able to talk you through the lending options available to you and give you advice about the right option for you.

Until next week,
Mike Reddy
www.syb.com.au