Getting A Loan?
What you should prepare before you ask for a loan.
Going to a bank and making a loan application for finance to purchase or set up a business can be very daunting. Some say this is one of the most stressful things you will do in your life. This doesn’t need to be the case as this stress can be reduced by some premeeting preparation and research.
RESEARCH YOUR BANK
Choose a bank which has expertise in your industry and will provide the range of financial products and services you will require. Do they have specialists in your business segment, such as franchise finance? Do they have a banker you can meet face to face or will you be directed to a call centre?
Your application and the quality of advice you receive will be improved by some preparation. They say in real estate, ‘Location, Location, Location’. In business this mantra can be replaced by, ‘Prepare, Prepare, Prepare’.
This view is true irrespective of the amount of money you are looking to invest in the business purchase. Mobile businesses, for example, while at the lower end of the cost spectrum, still have the potential of losing a lot of money if the purchaser gets it wrong.
Potentially you can lose not only your initial investment but you will also be liable for any losses you may accumulate. Before making that all important appointment to see your banker spend some time to prepare.
UNDERSTAND YOUR FINANCIAL CAPACITY
Your banker will need to assess your financial capacity. Write down a list of all your assets (what you own) and your liabilities (what you owe). Don’t forget balances in your superannuation funds and limits on your credit cards.
Also include a list of your income and fixed outgoings (loan repayments, credit card payments, private school fees, etc).
You should include dividends from shares, rent from investment properties and external income from part-time work.
Bring a copy of your personal tax returns for the past three years and bank statements for your bank accounts.
The banker will look towards securing your loans against your house or other real property and in some cases the business itself.
This may require a re-finance of loans if they are with another lender.
PREPARE A BUSINESS PLAN
Taking the time to write a detailed, well thought out business plan is essential when starting or purchasing a business. This will document your business opportunity and how you will run the business.
Among other things, your business plan should include your goals, strategies, prospects, financial information (historical and projected) and business structure.
Your plan will help identify any weaknesses in your business and issues you need to work on to ensure you’re moving in the right direction.
A business plan will help your banker and other advisors assess your business and offer guidance.
Remember your business plan is a roadmap and will assist you to monitor your performance. It is a living document and needs to be monitored and adjusted as your business progresses.
There are a number of free websites which can help you by providing templates and other advice on preparing a business plan.
Speak to your business advisors, business accountant and lawyer. These advisors are able to recommend business structures, tax planning, GST obligations and book keeping. They can also assess leases and agreements,etc.
Time and money spent at this stage will ensure the proper processes are put in place and legal obligations are understood.
Most state governments provide a free or low cost service to assist people get into business. There may be some training programs available.
Look at any weaknesses you may have and put a plan in place to develop yourself. Few people will have all of the required skills up front. Learning is a continuous process for all business owners.
When speaking to family and friends, ensure you are getting a balanced view. Like with all things in life others will have their own opinions and bias when giving their views.
RESEARCH THE OPPORTUNITY
As outlined in this article, research will assist you to understand the business you are looking at purchasing. Spend time with the vendor, and in the case of a franchise, speak to as many other franchisees as possible, including some who have left the system.
This process will provide a well-rounded and realistic view of the business. There is no such thing as a perfect business.
Involve the franchisor at an early stage. Franchising is like a marriage and all parties need to build a sound professional relationship.
Look at the industry and how it is being impacted. Many industries have been impacted by such things as changes in consumer behaviour and legislation. These issues may be different from state to state and region to region.
We have all seen the rise and fall of the video rental industry and the environmental impact on the car detailing industry.
Look at what the competition is doing. Ask questions such as:
• Will there be a price war?
• What is your business’ point of difference in the market?
• How easy is it for others to enter the market?
• What are the barriers to others entering the market, including cost, expertise, access to product, location, etc?
If buying an existing business, find out about your customers:
• Who are your customers?
• Will they stay with you as the new owner?
• How hard would they be to replace if they went elsewhere?
CONSIDER WHAT YOU NEED
What are you looking for from your bank? Business loan, overdraft facility, transaction accounts, internet banking, equipment finance, landlord guarantee, business credit cards, merchant facilities, personal and business insurances, etc.
The list is extensive. Your banker will help you through this, however some thought on your part will ensure all your business and personal financial needs are covered.
Provide a breakdown of the finance you will need. Include purchase price (or detailed set up costs if new), working capital, legal and accounting costs, stamp duties etc. Detail your cash contribution and financial reserves.
SUPPORT OF FAMILY
Family support is critical to the success of any business. Buying a business can be an added strain, at least initially, so it’s important that you consider how this will impact on you and your family.
Who will work in the business and on what basis? How will they be paid? Will employment outside of the business continue? Communication channels need to remain open to ensure any hiccups don’t get blown out of proportion.
Buying a business is an exciting time. Time spent before meeting with your bank will be worthwhile as it will reduce the stress for you and the time taken by the bank to come to a decision on your loan and other services your bank may be able to provide.
Steve Seddon is a Business Development Manager with Westpac. He specialises in the franchise sector and is on the Franchise Council of Australia Western Australian Committee. He holds a Diploma in Franchising and is a qualified CPA.
Westpac continues their long-term commitment to franchising in Australia. The bank has a national network of franchise specialist business bankers who are able to deal with the specific needs of the franchise sector.
Contact Steve at: