The Lending Pitfalls

So it’s time to invest in your business and you have big plans for this year. You make a couple of phone calls to the financiers and suddenly you realise that not everyone shares your positive outlook regarding your growth and expansion. If this sounds a familiar story, you are not alone. It can be very frustrating experience to try and access asset finance or secured/unsecured business loans and find that even if you are looking for less than $50k it can be difficult to access the capital at a reasonable rate, if at all.

There can be many reasons why lenders may not consider your application, lack of up-to-date financials, poor historic financial performance, poor credit, lack of assets/security, short business history, tax issues to name but a few. Depending on the type of finance required the lenders will look at a number of business indicators:

Cashflow
Do you have the financial resources to service the loan repayments. If the business has not shown a profit in the last year and you want to purchase a $30k piece of equipment, where is the money coming from to meet the repayments. It is easy to say that the lender can repossess the equipment, but in reality, no lender wants to do this, not least because the second hand market can be unpredictable.

Security
What assets does the company actually have, as $500k of goodwill on the balance sheet is not a realistic asset for the lender. How much debt does the business already have, and what security has been taken by other lenders e.g. First mortgage, second mortgage, charge over assets on the PPSR. Remember, even if the asset you purchase is securing the loan, it is not the intention of the lender to liquidate this so they will need to see the serviceability of the repayments as well.

A Strong Business Plan
This is especially important where you might be refinancing a business or securing bridging finance. The lender will need to understand how you are going to service repayments and also have an exit strategy from the loan, whether this is through increasing business profits, realising some assets or migrating to another form of finance.

A good experienced broker can help guide you to the appropriate type of finance for your needs and will understand the debt serviceability of your business.

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