One of the biggest post-GFC frustrations for business throughout Australia is securing finance from the banks. A few years back, when credit was liquid, banks were falling over themselves for your custom and it was easy to obtain finance with less than perfect information. Now it’s a different story.
Banks now demand perfect applications for loans. If there are gaps, they need to be filled in.
These credit principles are not new; they are just being enforced. So forget about the banks being the bad guys. And remember that if you can provide all of the information they need, the banks are still keen to work with you.
There are no excuses. Plenty can be done to secure finance provided your business keeps a positive mindset and do not see the banks as an enemy.
The following five steps will give your business the best possible chance for negotiating finance:
Have your 2010 financial information ready
As of 1 January 2011 banks now require full information for the previous financial year. And they will often be keen to see financial data on the year-to-date to see how you are going so far this year. Being organised on your financials is therefore a top priority if you want finance, but it also has a double benefit: not only are you making it easier for banks to provide finance, you will also be on top of your business and that can only be a good thing.
Provide a Three Way Forecast
Banks also want to see a Three Way Forecast: that is, forecast numbers on cash flow, profit and loss and balance sheets. This is recommended anyway, regardless of the banks demands. In fact, this kind of forecasting will help you to decide how important that funding really is; after crunching the numbers, you may find that taking on a loan may not be appropriate.
Don’t obsess about interest rates
Getting hung up on interest rates can create problems. Too many businesses switch banks needlessly after being lured by an attractive headline rate, yet later find out they aren’t comparing apples with apples. Rates may look good on paper but many factors will go into your final interest rate, and the bank may wish to place onerous covenants on the loan, or impose harsh terms and conditions. Any offers must be viewed holistically.
Value the relationship
A good relationship with your current bank is often your best ally, which is why business should always think hard before switching. Even if your current bank has a higher interest rate than the competition a good relationship can prove incredibly valuable. For instance, if something unforeseen happens and you need help at short notice a bank who knows you well will be more responsive.
Remember, no surprises
Banks don’t like surprises. Keep communication channels open. If you might be facing some future challenges bring it up, talk about it, be prepared and they in turn will be prepared to help when that time comes. Never push things under the carpet.
Geoff Steer is a founding partner of Matthews Steer Chartered Accountants.