A lot of today’s businesses don’t entirely understand what is involved in a finance application and in some circumstances are not properly prepared for the questions that need to be answered and the information required.
Not being prepared can mean the difference between being approved or not.
Not having your application approved, or not being able to gain the most cost affective and competitive finance result because of lack of information can in most cases slow the forward movement of your business and slow your income growth potential.
It is vital when looking at a new finance opportunity whether it be for more plant and equipment or just more vehicles to increase your sales force, that you are providing your finance agent, bank or broker with as much information as possible, company financials, asset & liabilities, company history etc.
This on the surface could look like a lot of work and very labour intensive, you may also ask “why I am doing that, haven’t I employed someone for that?”
If you don’t have a sound understanding of the information needed and its validity or at very least where it can be found and by whom, it will make the application process long, drawn out and in most cases very complex and hard to approve remember this will cost you money as your broker/agent isn’t working for free and the longer they spend on it, the more they can charge.
What about your own financial position is it being managed by somebody?
If you have a financial advisor, proactive accountant or perhaps a senior employee looking after your personal affairs brilliant.
If not!
Make a simple T account to keep track of your personal financial position and it will also assist in any application for finance as the information of the senior management team is just as important as the information about your company.
Take five minutes to fill out a quick Assets and liabilities balance and keep a copy saved somewhere, update once a month or if you sell off or significantly change your financial position make the update and changes straight away, it is simple and if kept up to date will stay simple, this will assist and fast track the finance application and approval.
Important
The easier you can make it for the agent/broker, could equal less broker fees and commission you PAY!
Another very important factor is WHY?
For what reasons are applying for finance and is what you are financing good value, is it going to cover its cost and is it going to grow your business and bring financial empowerment?
Here is a list of points for you and your business to consider before you apply for finance;
1. Why are you purchasing the goods?2. What benefits will you gain out of buying the goods?3. Is it replacing current goods or will it be additional?4. If additional what sort of income will it bring to your business?5. From a cash flow analyse, what is the financial impact of the new goods to your business?6. Is your business expanding, diversifying or is your business downsizing with the purchase of new goods?
Your business operating history is a vital part to gaining a sound approval for finance, here is a list of questions you will be asked when applying for finance;
1. How long has the business been in operation?2. What does the business do? What industry?3. A brief description of how your business operates?4. How long have your senior management team been involved in the business?5. What experience and qualifications do your business and the senior management team have in your industry?6. If your senior management team is new to your business what where they doing previous?7. What is your corporate structure? Are there any trusts, other companies in your group of businesses that will impact your application?8. If yes to point 7. What is the relationship between the companies? Also note that this should illustrate the involvement of other share holders and senior management teams.
The most integral part to the application is serviceability and the company’s financial position, the best advice is to have your company financials up to date and completed, having a copy of these financials on hand is important, and proactively having the information ready for the finance company will work in your favour and will demonstrate that your business is prepared and will limit the time between the application and its approval.
“Time is money”
The financial information you are providing in most cases should clearly demonstrate serviceability and provide sufficient comment to mitigate any shortfalls or major fluctuations in the year to year analysis.
Will your profits after all the add backs cover all your financial commitments?
Has your business got enough working capital to support further financial commitments?
Additional to your completed company financial data it will be advisable to support any information with a list of aged debtors and creditors for the business, this information will fill any holes left in the company financials and generally will indicate the short term future financial activity for your business.