Given all the various finance options available and the complex matrix of requirements associated with getting approved, it would be a rather lengthy exercise going through every scenario. That being said, it is worth having a checklist of the basics which are required in almost all circumstances.
Things to Do Before You Apply for a Loan
There are 5 key things you need to do before you apply for a loan or business finance:
- Register for GST
- Prepare and confirm company details
- Review company and directors credit report
- Prepare the financial accounts
- Prepare directors asset and liability statement
1. Register for GST
There is a lot of discussion as to whether a small business should register for GST. If the business intends to borrow money now or in the future, it would be best to register for GST as soon as possible. For most small business financial providers -- this is a requirement.
2. Prepare and confirm company details
This may sound like stating the obvious, but it very important that the information you submit about you and your company can be correctly verified. Check and document the following: Company registered and trading addresses, phone numbers, email address, contact names, ABN number, and trading name.
If owned by a trust, get a copy of the trust deed and document beneficiaries. Document director’s details as above and ensure they match current photo identification such as driver’s license.
3. Review company and directors credit report
Any individual and or company can request a copy of the same credit report the financial institutions will be examining when assessing a credit application. It is strongly recommended you obtain a copy and review to ensure all details entered by third parties are correct.
If you find any errors, you are entitled to dispute the entries with either the credit rating agency itself or the party which added the entry. It is in your interest to rectify or resolve any discrepancies prior to submitting an application for credit. Simply stating that a record is in dispute does not help.
4. Prepare the financial accounts
For smaller amounts with some lenders, this may not be required. However, it is a good idea to have them ready. As a rule of thumb, you will need a full set of accounts for the previous financial year which has been audited or backed up with the signed corresponding tax return -- along with the year to date management accounts. It will help if year to date accounts are backed up with BAS statements.
5. Prepare directors asset and liability statement
As directors personnel guarantees are a requirement for borrowing in the SME market, getting directors A&L declaration right is important. However, I think it is best to understand why first. The misconception is that it’s all about demonstrating enough net assets to cover the debt in the event the business fails.
There is some truth to that but not the real issue. Lenders want to see that the director is stable financially and therefore committed to the business. If after reviewing the company, they feel they may have to go after personnel assets at some stage they will not lend in the first place.
That being said when preparing the statement to ensure that all valuations on the assets side are realistic and title lies with the applicant and all liabilities are disclosed as this will all be scrutinized in the credit process.
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