There are a lot of people who come to me and ask for finance but make a series of common mistakes that could be prevented with a little bit of forethought and knowledge.
This isn’t a comprehensive list but enough general information for you to start seeking professional advice from your accountant, lawyer or your banker.
Here are a few common mistakes I have come across and ways where you can minimise the time delay in getting an answer:
1. Past bad credit history Often people have a bad credit history and usually its not the result of their own fault. A common credit default would be a telephone, electricity or mobile phone bill that was not paid for but has been fixed soon after. However, because personal credit histories are only noted once you pay a fee to obtain it from a 3rd party provider, a lot of people are not aware of it until a credit history is done by a bank when you obtain finance. So, provide an explanation or evidence that the outstanding bill has been paid to your banker so it can be reassessed. Being upfront and honest about your past credit history will save you time – if this is not something that the bank is comfortable with, then don’t waste 2 weeks to get an unfortunate response.
2. Overdrawings/Dishonours on your statement When assessing a loan, I often found that I spend all of my time putting the application together for only in the 11th hour, bank statements show numerous overdrawings and dishonoured payments. Consider overdrawings and dishonour payments as significant red flags to all commercial assessments as this signals bad account management.
My recommendation to all business owners is to be either upfront or ensure they are on top of all there incoming cash and outgoing commitments. If you were to lend money to a friend, would you lend to someone knowing that they are always slack with their cash and always chasing their tail in meeting their next bill? If the answer is no, why should the bank come to the party?
3. Financials Often banks require the most up to date financials for your business. They need this to ensure you can afford all your existing and proposed debts with the current financial strength of your business.
However, if your financial records are all over the place, it tells me as a banker that your accountant is slack or incompetent (consider changing to a more reputable organisation – they might be more expensive but advice and expertise are critical) or your business management is lacking. Obtaining reliable and relevant financial information in a timely manner is key to a successful business – hiding your head underneath the sand and hoping for the best can get you so far until you receive a call from your creditors. Good luck to you then.
4. Hurt Money When you go into business, a good piece of advice I received from a highly successful business owner was to only partner with people when they have something to lose as well. Same thing with the banks – what are you going to put on the table when you are looking to obtain commercial finance? Your residential property? Guarantees? Personal cash investment?
By showing clear evidence of what you are willing to put on the line, it demonstrates that you are willing to put some of your own assets on the line as you go about running a business. Also, it gives a way out for the banks in the event that you fall over.
I might sound biased, but I am pretty confident in saying that it is no one’s interest to sell your personal property or go through the winding up proceedings. Why? Who would like to spend their time and resources in closing up a dying business where the recovery of debt owed is unlikely?
5. Multiple banks I have heard some clients telling me that they want to have their fingers in different banking pies and keep everyone honest, so to speak. This is not necessary a mistake but what it does is limit your relationship with a bank, especially in a commercial sense.
What does that mean? Flexibility in running a business (remember accounts being overdrawn from a forgotten cheque? Your relationship manager can look after you with that). What happens if you want to extend a higher unsecured limit? Having both a personal and commercial relationship can possibly solve that problem.
Also, it would beg the question, why are you asking me for finance if your personal accounts and home loan are with Bank A, your business transactional accounts are with Bank B and you already have existing finance from Bank C?
Any questions, shoot me an email.