Sometimes it can be daunting approaching the bank for a loan but did you know there are things you can do to better your chance of being approved? Here is my weekly tip for Business and Commercial property investors to help you prepare for a positive outcome.
The Bank wants to lend money. But we want to see good account conduct and prove you can repay your commitments. It’s easy to get busy, not monitor your cash flow and end up with late payments and over drawn accounts.
Before applying for a loan, be sure you look good on paper. Keep your accounts in good order for 1 year. If refinancing most banks will want to see the last 12 months statements of your trading and loan accounts to confirm good conduct.
If you have gone outside of your arrangements, had you organised with your financier prior to it occurring? Have a read through your statements, are there regular monthly payments coming out which the Bank may seek further clarification on i.e are they loan payments or insurance payments.
Have you had a default listed against you, if so what were the circumstances and has it been paid. If it has been paid has this been updated through the credit bureau, some business’ are quick to lodge a default but can be slow in updating to advise cleared.
If you are a wage earner, pay slips and stable employment will often suffice for proof of income. However if your are a business owner, you should have been in business for at least two years before looking for finance so the bank can gain comfort from your trading figures. Historical income is always requested.
Before you apply for a loan, ensure your Accountant prepared financials have been completed and that all tax obligations are up to date. Have a look at your financials and get an understanding of them, would you lend money to someone with these figures. Write down your net income (after tax) and deduct your commitments, what’s left is what you have for living expenses, is it enough.
There is an old saying that “cash is king”, that is very true in the right circumstances, however Bank’s will only look at what is in your financials and what gets sent to the ATO. Bank’s won’t take into consideration what doesn’t go through the books. Trading in this manner may also create problems when it comes time to sell your business, potential purchasers generally want to see financials by accountant to confirm profitability and value of the business.
Be sure to tell the bank about all debts you have including loans you are a guarantor for. By being upfront and confirming these points you may save unnecessary delays in approval. Watch this space for next weeks tip.