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So You Are Thinking Of Borrowing...

Written by Kirstie Smith . January 21, 2019
2 min read

The majority of our clients who are running successful businesses will require a form of borrowing at various points in time. Most of the time when clients require loans, it is not a sign that they are struggling, they are usually borrowing to make investments, reduce personal risk, growing or starting businesses.

When preparing information to put forward to a lender, it is important to present a well structured business plan and accurate historical information.  Our team at BLG are happy to support clients with this process to ensure that obtaining finance is as stress-free as the process allows.

Loan Mistakes

Common mistakes to avoid when applying for a loan include:

  • Asking for more funding than required
  • Rushing the application
  • Inflating the value of the business assets
  • Looking at the business turnover rather than the actual cash flow and net profits of the business
  • Not providing information about the directors or the related individuals of the small business. Banks often require individual guarantees depending on the applicant’s circumstances.

For more information on the above, see the Australian Bankers Association report on the small business sector in Australia. The report provides detailed insight on the current lending climate for small business.

Loan Application Requirements

It can be helpful to talk through what is usually required on a loan application, which includes:

  • Purpose of the loan
  • Amount of funds required
  • When will the fund be required
  • Expected duration of the loan
  • How will the loan be repaid

For every loan application, the lender will consider the risk to itself and the risk to the borrower. In order to mitigate this risk, the bank will require an amortisation strategy on how the debt is intended to be paid back.

In order to prove the loan can be repaid, our clients regularly need to report financial information to banks and demonstrate that they have satisfied all the compliance requirements. It is common practice for our office to assist in the preparation of management accounts for lending purposes and to review and assist with the completion of covenant and compliance declarations.

Proactive Loan Preparations

If you are intending on sourcing finance in the next year, it is important to present your business in its best form. If you have time up your sleeve, make sure you are proactive by ensuring you:

  • Have paid your debts on time
  • Have a history of savings
  • Can present a stable cash flow and a good credit history

When approaching the bank, think about the repayments and what you can afford, the pricing of the loan (being the interest rates and fees) and the conditions you must meet whilst repaying  the loan.

Finance can be a daunting and stressful task especially in the current banking climate. Our team is here to help, reach out and see what we can achieve together. Get in touch online or by calling (02) 4229 2211.

*This information is relevant at the time of publishing and is subject to change*
Written by Kirstie Smith . January 21, 2019

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