Putting Your Best Foot Forward For Finance
Putting Your Best Foot Forward For Finance
The finance landscape in Australia has undergone significant changes in recent years. As a result the number and type of finance options available to small business owners has increased significantly, leaving many overwhelmed about which option is best for them and their business. Many first time franchisees are unaware of what the first step is when seeking finance for their business, adding stress to what should be a simple process. Having a greater understanding of your finance options and what the process entails will put you in a better position to make educated choices.
What Do You Need For A Finance Application?
Submitting a strong application sets you up for success when applying for finance. Not having a good understanding of what lenders will want to see in your application can cause time delays as they seek out additional information, and can even dampen your chances of approval. The most important consideration for a lender is the viability of your business and your capacity to repay the loan.
Each lender has their own unique application process, and gaining access to finance from an alternative lender can be a considerably different process to that of a bank. Whilst there is some standard information that all lenders will likely ask for, certain characteristics can influence what the requirements of an application are, such as the type of business, value of the loan and experience of the business owner.
The most common requirements when lodging a finance application are the following: a completed application form from the lender, a valid form of identification, a business plan, an Asset & Liability Statement, a Commitment Schedule, financial projections, personal and company tax returns, an ATO Notice of Assessment and Business Activity Statements. Whilst you might not need all of these it is a good idea to have them on hand, to ensure a smooth process.
When gathering all the information required to complete your finance application, a key consideration is that the information is accurate. Errors can have a significantly negative impact on your application and can even bring your credibility into question. Responsible lending practices are in place to protect both the borrower and lender, and ensuring that your application is truthful allows both parties to make an informed decision about your funding.
What Are Lenders Looking For?
When assessing an application, lenders are generally guided by ‘The 5 C’s of Credit’, a set of principles that aid in evaluating the borrower and their businesses viability. When preparing your application for submission, these principles should be kept in mind.
Character. This refers to the borrower themselves and encompasses things such as your reputation, your willingness to pay the debt, the results of credit reports and any information found as a result of social media and Google searches.
Capacity. This solvely considered your financial capacity to repay the loan. When assessing capacity lenders will take into account your income, expenses and any other financial obligations such as existing debt.
Capital. This is more of a general look at your overall financial position. Lenders will likely evaluate your net assets and their liquidity. This is an important consideration if circumstances become difficult, as assets may have to be liquified to provide cash to meet your immediate financial obligations.
Collateral. What is considered where will vary depending on which specific lender you choose to fund through. For more traditional lenders and banks, collateral or security often comes in the form of your home or property. However other alternative lenders may choose to use the assets being finances as security for the loan. In addition to this, Director’s Guarantees or Personal Guarantees may also be requested as a further form of security.
The conditions encompass the terms on which the finance will be offered to you, the borrower. This will vary for each lender but generally includes the interest rate, fees and contract term.
Managing Your Expectations
Despite how brilliant your application to a finance lender is, it is important to manage your expectations. Occasionally franchisees expect to utilise debt finance as the sole source of funds for their business. As a general rule, this is a dangerous move for both the lender and borrower, and would only be considered in very rare cases. Responsible lending guidelines play an important role in the type and level of funding a finance provider may choose to give you. This is because taking on an unrealistic level of debt is one the fastest ways to put your business at risk, and lenders don’t want to see their clients fail!
Debt financing is a great tool to be used in lieu of working capital when funding expensive items such as equipment and fitout. However it is important to realise that it shouldn’t be your only source of funds. Achieving the right mix of debt and equity finance and continuing to manage this throughout the life of your franchise business will encourage long-term success and sustainability.
Don’t Just Take Our Word For It
Finally, one of the most important steps when seeking finance for your franchise business is to get advice. The best time to do this is before you even start applying with banks or alternate lenders. This advice should come from professionals, whether that be an accountant, lawyer or business advisor, make sure it is someone who has your best interest at heart. These professionals can help you establish what business structure is best for you, provider a better understanding of your role and responsibility as a business owner, explain your obligations surrounding tax and GST, review agreements and advise of potential risks.
After consulting with qualified professionals, you may also consider seeking some advice from people within the franchise network. Seeking out existing franchisees can provide you with a unique insight into how your particular franchise system works and can produce some invaluable advice to help prepare you for your franchise journey.
Unfortunately for many franchisees access to finance has been seen as a hurdle to overcome in their franchising journey. However as new funding options become more accessible for SMEs, getting the funds to start your business is no longer a struggle. Although it is not always a given, having a good understanding of the application process and putting your best foot forward will give you the best chance for success.
About James Scurr
Seeing a gap in the market, James founded Cashflow It in February 2014 after garnering financial services experience with a publically listed company where he developed a successful division within the group.
It is James’ experience as a franchisee, however, that ensures Cashflow It meets its customers needs better than any other equipment finance company in Australia. Spending almost a decade as a successful multi-unit franchisee for companies including Boost Juice, Dreamy Donuts and other independently owned businesses, James has extensive franchising and small business experience, and has an acute understanding of Cashflow It customers’ requirements.
James holds a Bachelor of Business, majoring in Management and Accounting from Queensland University of Technology. He is an internationally recognised Certified Franchise Executive (CFE) and a Frandata Registered Franchise Lending Specialist.
Contact Cashflow It on 1300 659 676 or visit www.cashflowit.com.au