Borrowing money is rarely a business owner’s finest hour, according to Joseph Daoud, founder of It’s Simple Finance. By the time most reach out to a bank or broker, something has already gone wrong and at that point, their options are limited.
Cashflow is everything to a business, it’s what keeps them afloat. From paying staff to the Australian Tax Office, these pressures can be exacerbated by poorly structured loans.
Planning Ahead
To offset these pressures, planning ahead is important. Cashflow forecasts can be a great way to identify weak points early. Anything that shows declining profit, stretched creditors, or overdue obligations will limit your options, but that doesn’t mean you shouldn’t be honest.
Lying on an application or providing misleading figures can lead to legal action or being blacklisted. It’s essential to note the changes to Superannuation, such as the upcoming changes to superannuation repayments which require staff to be paid their super alongside their salary each pay run.
Performing regular cashflow forecasts six to 12 months ahead can not only improve your chances of approval, but improve your business operations. Having up to date financials can also speed up the process by providing lenders a clear picture of your business.
Preparing Financials
This includes balance sheets, profit and loss statements, and business activity statements. You may also need to provide personal financial information depending on the size of your business. A business plan will also increase a lender’s confidence in your business’s ability to make money.
It demonstrates you are able to set goals and plan to reach them. It also helps you provide clarity on the total project you’re trying to fund. All of this should be prepared before you approach a lender or broker.
This is perhaps the biggest issue when owners apply for business loans. Often things have already gone wrong when they go to a bank or broker and by that point, options are limited. Things get even tougher if owners rely on themselves completely.
Related: Sunday Brings Spiritual Balance and Stable Decisions
Seeking Professional Guidance
Meaning they’re relying on online calculators and marketing material. A relationship with a financial advisor can help you make informed decisions before things turn into a crisis. It helps owners remain proactive rather than reactive.
Reactive business owners try to use loan funds to plug ongoing losses rather than solving their underlying problems. Long-term thinking can be achieved by proper planning and regularly updating financial reports. During your planning, be sure to check your credit record.
Lenders will check, so should you. Any unpaid or late payments on credit cards and loans will have a big impact on the interest rate lenders will offer. Once negotiating with a lender, owners should clarify what is secured.
Is the lender taking security over the specific asset or all business assets? Consider how the security structure will affect your ability to refinance, introduce another lender, or change your business structure.
All of these mistakes are the result of owners borrowing reactively without preparation or professional guidance that consistently leave them with fewer choices and worse terms. The solution isn’t complicated, just easy to put off.
In the small business world, it’s essential to keep your financials current, build relationships with advisors before you need them, and treat cash flow forecasting as a regular discipline rather than a crisis response.
When the time comes to borrow, you want to be walking in with options, not walking in with no choice.
Preparation can make all the difference in securing a loan with favorable terms.
