Bank Finance

Main considerations when applying for a loan

  • Applicants Background
  • Business Plan
  • Purpose
  • Amount Sought
  • Deposit
  • Personal Statement of Position
  • Security
  • Repayment
  • Interest Rates and Charges
  • Tax Deductibility
  • Referees
  • Credit Checks

Applicants Background

Even if the lending officer knows you,your application will most likely travel around various departments before final approval. A brief but concise overview about the owners of the business, covering business experience, qualifications and personal position must be clearly stated.

Business Plan

The Business Plan tells the lender the story about your business, what market you are in and your sales figures which will determine and justify how you expect the loan will be repaid. Your business plan will also detail cash flow projections, anticipated profit and loss position, taxation liability and what you the owner expect to draw from the business to live on. The strength of your business plan is a major factor in loan approvals, especially for new or fledgling enterprises.

Purpose

The first question! “What do you want the loan for?” Be prepared and be confident. Know your facts. If you need to purchase a computer for example, supply quotes on what you need, specifications and why that model will assist your business.

Amount Sought

Make sure your quote covers everything you need and the amount sought is correct. It is a costly exercise to re-negotiate another loan facility.

Deposit

Most lenders like to see you put some of your hard earned cash into the transaction. The minimum amount asked for is usually 20% of the purchase price. Remember the more deposit you can raise the less you have to borrow and the lower the repayments.

Personal Statement of Position

You will be asked to list down your personal assets and liabilities. Have valuations handy if you own real estate or current statements for any loans you may have outstanding. What the lender is looking for is your personal worth - the difference between your assets and liabilities. You will need to sign this statement as a declaration that the details provided are true as at the date of application.

Security

Most lenders will usually require security for loans over $5,000. Security can be a charge/hold over the equipment or land and buildings. Either way government stamp duty and lodgment fees increase the cost of your borrowings.

Repayment

Repayments can be quite flexible, and these days tie in with your working capital and cash flows. Check that you can repay additional capital without penalty and ask to have your loan on a daily interest rate facility.

Interest Rates and Charges

Research the lending market or use a finance broker to search the market to compare rates. Be careful, as some lenders have lower initial rates but add in establishment fees, monthly line fees and annual review fees. Loans under $5,000 are usually placed on credit card facilities. Caution! The Rates here can range from 12-25% p.a.

Tax Deductibility

Generally most items required by a business in producing income are tax deductible. Seek advice from your finance advisor or accountant on the most tax effective form of financing that would suit your business. For example a leased vehicle has different tax implications than a vehicle acquired under an Asset Purchase facility.

Referees

You are usually required to provide 2 referees, being people or businesses you deal with. Your lender would ring them and confirm that your trading terms and accounts with them were all in order.

Credit Checks

These are undertaken on both the owners of the business and the business name itself. Registered business names are also searched to ensure that the loan documentation is the same as the registered details.