Helping clients fund business growth

Binary options in excel daily One of the more frustrating challenges for small business owners is finding the right funding to help them achieve business growth.

dating sites in san antonio tx Business owners believe passionately in what they are doing, and they find it hard to understand why others can’t see the potential and strengths of their business. We have probably all had clients who are small business owners, where the business is bursting at the seams, wanting to take advantage of the next opportunity but unable to do so because they feel they can’t quite afford the staff or premises or equipment to do so. There are a range of financing options available, some more obvious or familiar to business owners than others, but all have pros and cons that need to be reviewed.

marriage after 7 months of dating It is important for small business owners to fully understand the requirements of any financing and to research all the options before committing themselves. Unfortunately, I have seen business owners who are so excited by the fact they have been offered a loan, that they fail to fully weigh up the obligations required of them – sometimes with costly consequences.

ثنائي الخيار أجهزة الصراف الآلي uk order metformin Financing options The options traditionally available to SMEs are property-backed loans and other asset-backed loans.

autopzionibinsrio With property-backed loans, the loan is secured either against the family home or, if the business has some scale, the commercial premises they operate from. There are some drawbacks to this approach. For instance, there must be sufficient equity in the property to allow funding lines that can be used for the needs of the business and its working capital or growth. Banks generally gear the property at no more than 80 per cent for residential and 65 or 70 per cent for commercial. The other main drawback is having the home as security for the business, which in a worst-case scenario places that key family asset at risk.

Other asset-backed loans include equipment finance or debtor finance. The drawback of equipment finance is that the payments start from the first month and, depending on the payback, it could take many months to build the cash flow from the investment being made. Debtor finance is quite flexible and assists growing businesses, but the drawback is that generally a minimum $250,000 debtor book is required by the funders as well as a spread of debtors. Furthermore, lenders generally like to see a business that has traded for more than two years.

Another good option to consider is an accelerating growth loan for SMEs, currently being trialled by the NSW government. This is an unsecured option and is a good effort from the government to help SMEs that are finding it difficult to get funding and do not yet have enough assets to borrow against, but will grow and hire new employees.

In addition, fintech is starting to grow and come into the SME space. They offer unsecured loans of up to $500,000, but it can be quite expensive and generally the loans have to be amortised monthly and usually over not more than a 13 to 14-month period. On its own, this is not necessarily a full funding solution, but may be used as a bridge to other forms of funding.

Reviewing the offer

Regardless of the financing option being considered, it is important to follow a few simple rules.

Firstly, have a thorough read of the terms and conditions of any agreement. Ensure that the commitments are something that can be met for the term of the proposed loan by the business. Don’t just take the first offer that comes along.

Secondly, ask whether it is a fair deal and whether the lender can be trusted to work with the business well into the future. It’s important to test the market properly and see what else might be available.

Next, ask someone who is in your corner and who is independent of the lender to review the loan and whether it seems appropriate, and the terms and cost seem fair and reasonable.

watch Lender requirements

Businesses should be prepared to provide potential lenders with detailed information and reports. Before going ahead with any funding, most lenders will require the following:

  • Details of the business and any corporate structure and its ownership;
  • The past three full years of financials of all trading entities;
  • Most recent management accounts to the last quarter of trading;
  • The last two years of personal tax returns for the directors of the business and security providers;
  • A projection – profit and loss statement and cash flow if possible – for the upcoming calendar year, including assumptions;
  • Personal asset and liability statements of directors;
  • Description and history of the business including details of aspects and relationships that are important to the business;
  • Three months’ worth of bank statements or summaries on the business trading account and the actual loan accounts as well;
  • Debtors and creditors aged trial balance as at the last quarter; and
  • If a trust is involved, a certified copy of the trust deed.

External advisers can help build the ‘business story’ and link in all of the other information required in a way that satisfies the bank and shows the business in the best light.

It’s important to take control of this process rather than simply allow the lender to dictate the process as well as the terms and requirements. Presenting the funding request in a professional manner, with up-to-date information, makes it simpler for the lender to make a decision on the credit.

Also, be aware that many of the individual lenders that operate in the SME space often have many clients, are time poor and require the applicant to do a lot of the work.

Having someone to help co-ordinate the process, who understands your business as well as how the process works, will help secure funding that best suits your business.

James Macfarlane, director, HLB Debt Advisory


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