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Seeking Finance for Commercial or Business Purposes

Seeking Finance for Commercial or Business Purposes

This article highlights two key factors to consider when applying for business or commercial finance – business insights/information and financial information.

The common feedback we get from business owners who have tried to obtain finance is that the process is difficult, painful and often very time consuming. There are many reasons for this such as changing lending policies, bank appetite and industry conditions to name a few.

One of the common issues however is that many people don’t fully understand what information the bank needs to properly complete their assessment of the loan application. Sometimes people also underestimate the importance of some information being requested and therefore do not provide it in a timely manner or at all.

What we aim to do when assisting our clients is to ensure they understand how each piece of information will impact on the outcome of their application and educate them on the lending process.

Important Tip – provide all requested information upfront (not drip fed), well presented and in a timely manner.

When seeking finance for commercial or business purposes, there are many more factors which need to be considered when compared to a standard home loan. Unlike with home loans, it’s not as straight-forward as providing your payslips, assets & liabilities, living expenses etc. Commercial and business assessment is much more detailed and considers other elements outside of the loan request itself.

Things the lender will want to know can include, but is not limited to:

  • the industry you operate within;
  • your experience;
  • future industry performance;
  • key staff you need to run the business;
  • business & personal liabilities;
  • demand for your product or service;
  • concentration risk;
  • historical performance;
  • economic outlook;
  • balance sheet strength (not just profitability);
  • succession plans etc.

Financial information requirements are the main focus in many instances, however, even this can be underestimated by some business owners. Providing your last tax return or just some draft financial statements is not enough. The financial information provides insights into the performance of the business over time and can highlight how a business trades through challenging times or when disruption occurs for whatever reason. It outlines how management run the business and resource it according to demand. Good management of costs and overheads provides the bank with confidence around your ability to take on new debt. It’s important to make sure you have sound financial systems in place so that you can provide accurate and detailed information to the lender. This will only help improve your chances of a successful application.

What is the minimum financial information required by the bank to assess my application?

  • Your last two years financial statements (current & previous year format preferred) and tax returns for the trading business.
  • If any other related companies/trusts exist, then two years financial statements and tax returns will be required for them also.
  • Year to date management financial statements. If you don’t currently have Xero or a similar real time accounting platform for your business, then you should speak to your accountant and get one  asap.
  • 12 months ATO running statement to confirm the current position of all statutory ATO payments ie. Tax, BAS, Super etc.
  • Your last two years personal tax returns for each individual director/borrower/guarantor.
  • Three or six months trading bank account statements. Much of this can be downloaded quickly through platforms such as CashDeck (we use this) and rather than having to download individual statements which can be time consuming.

For more complex loan requirements, you may also be required to show the following:

  • three-way cash flow projections including detailed assumptions;
  • current aged debtors & creditors listing;
  • up to date leasing schedule (equipment & vehicles);
  • full tenancy schedule (property investors);
  • details of supplier and client payment terms;
  • industry specific information/data eg. Membership numbers for a gym;
  • copy of your business premises lease agreement etc.

As you can see, there can be a long list of information required for your loan application. If this is not readily available or you have not planned ahead, it can result in a cumbersome process and lower your chances of success.

If you or your clients need assistance with business or commercial finance, please contact the team at Duo Finance. We can help you plan and prepare your next finance application and manage the process to spend more time on your business.