The chances are you didn’t go into business because you wanted to be a financial genius.
The bridge to better funding
Lenders are only interested in their wants and needs, not yours. If they can screw a little extra interest out of you and don’t be surprised if they leave you short. Finding a way to mitigate any weaknesses in how your business measures up to the Five ‘C’s is what separates those who will find financing from those who won’t. When your broker helps you to understand the questions in advance, it’s much easier to pass the test and get a loan.
A Finance Broker, on the other hand, is interested in you as a client and will have your best interests at heart. They will usually work with a range of lenders, maybe 20 or more, and will help you to select the best options to suit your business.
A Finance Broker will help you to understand your options. Lenders vary from the traditional banks and credit unions to the non-traditional and private lenders.
They will ensure all your paperwork is in order and your needs are going to be adequately met. Once you agree on a course of action they will commence negotiations on your behalf so you are relieved of the time and frustrations experienced when dealing with lenders and you can devote the time more productively to your business.
Having some cash on hand for day-to-day cash flow and maybe a little set aside for a rainy day is good business and it tells the broker and the lender the business loan you’re looking for isn’t a last-ditch effort to keep your business going for the next few months while it continues to falter.
Seeking sufficient capital from just one or two lenders, not only ensures that you have the resources you need to fuel growth, but also helps to protect your credit rating. This is because every time you submit a loan application to a lender, you authorise an inquiry into your credit report.
Too many inquiries can hurt your credit and signal that you’re desperate for cash. Good brokers are careful not to let this happen, whereas inexperienced brokers will spray you needs to many, like throwing mud at a wall and hoping some will stick.
They can help you to become ‘Investor Ready’
Approaching the loan application process fully prepared means having the business well prepared, commonly known as ‘Investor Ready’
Investor Ready is about building a real business, getting it into the ‘fair dinkum’ department, real products and real management in place along with all the necessary facilities and equipment needed to get the job done. Luck favours the prepared business and this does not happen overnight.
It will take many hours over many months. Of course, it will take longer if you don’t have access to expertise and your systems are not in place. Let’s get started and get lucky. An Investor Ready business makes things happen, by having:
- A Business Model that works.
- A Working Business Plan and Budget in place.
- Up to date financial figures and reporting.
- Valuations of key assets which are reasonably current.
- A mature management structure in place.
- External advisors in place.
- An Owner’s Operations Manual, or Policies and Procedures in place.
- Clear workflow processes in place and working.
- A market growth strategy.
- Strong growth and/or growth potential.
- The right attitude to new ideas and change.
- Intellectual Property is documented and protected.
Marshal your resources in such a way that they are working in unison which can easily be seen by the owner and communicated to potential finance providers, strategic partners and alliances.
“Your time is much better spent taking control of opportunities than sweating improving your financial situation”. Peter Sergeant
Naughts and crosses aren’t what they used to be to the untrained eye.
They can help you to understand exactly what you want and need
If you’re not sure how much cash your business needs to operate or expand, meet with an adviser, broker, or an accountant before approaching any lenders. Be prepared to supply documentation to back up your request and to answer lender’s questions about your finances, business model, risks and future plans.
You will need to be ready to discuss exactly how the new loan money will be used. For instance, you might show how the cash will be used for marketing, to purchase materials, to set up in a new location, or to pay additional employees.
What they don’t want to see is the money being used to pay off overdue debts, they will want the money to be used for going forward, not survival.
They can find out about your credit rating
Understanding the process because even if you don’t get the first loan you apply for, there may be some lessons to gain from the experience. If you were turned down due to a poor credit rating, you should take the time to improve your position and credit score and then seek a loan at a later date.
If you’re applying for a loan with a traditional lender, your credit score is one of the main factors they will consider. So, before you contact any bank, know your credit rating. Request a personal credit report from a credit reporting agency (e.g. Dunn and Bradstreet). Check for errors, such as a payment you made on time but was reported as late. If you find a mistake, contact the credit agency and the company involved to resolve the issue.
They can help you to consolidate your debts
Many business owners feel better owing a little to many different creditors. But this approach can actually hurt your credit rating. It’s smarter to owe higher balances to fewer lenders. A good strategy for raising your credit score is to consolidate your debt and then concentrate on reducing your total balance.
You can accomplish this by paying off several balances with money borrowed from one source, such as a credit card, or another credit facility. Note that lenders can see when a borrower simply moves money around and doesn’t pay down balances.
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What you don’t want is a financial advisor who will back off if the going gets tough. Be aware that some financial advisors and accountants would rather move onto another client than see you through a tough financial crisis. A crisis that may even have been caused because of their poor financial advice in the first place.
Anybody can advise you during the good times, but are they just ‘fair weather sailors’? You need a financial advisor that will, during the good times, prepare you for the bad. Take time to talk to people they have helped through tough times and how they went about it.