Survey Results Part 1: The results are in and it seems that though your average buyer is confident that they will find the business for them, they’re unsure of how they’ll pay for it.
To take part in the survey click here.
When asked about the ease of funding a new business purchase, most prospective business owners responded negatively and it seems that their concerns are not without warrant. In September of this year The Australian reported that business lending in Australia had fallen from $739.9bn in July 2009 to $683.7bn in July 20101. Regardless of the reason, the fact remains that there are countless business buyers out there who are unable to obtain funding. Obviously having a good source of collateral is one of the main elements, but beyond that what else can you as a business buyer do to increase your chances of achieving a successful loan application?
1. Prepare Your Documentation
Prepare yourself as if you are going for a job interview. If you show up unorganised, your loan manager could perceive you as being a high-risk proposition. By the time you sit down in front of your loan manager you should already have the Profit and Loss statements ready (last three years preferable), a completed loan application, a cover letter, and if applicable a business plan. You would be surprised to what degree presentation matters so it may also be worth bringing promotional materials along also such as articles and brochures.
2. Prepare Yourself
You could have all the paperwork prepared, but if you aren’t ready to answer some questions, then your loan manager could perceive that you aren’t ready to borrow some money. Make sure you know as much about the business and your intentions as possible, and rehearse answering the following questions-
- How much money do you need to borrow?
- How long will you need to repay it?
- Do you have a plan in you can’t procure the loan?
Know the answers to these questions before you sit down, and answer them with as much confidence as you can muster.
3. Prepare Your Wardrobe
It’s been said before, but presentation matters. Dress like you’re about to borrow and spend a lot of money.
4. Prepare the Truth
Show a loan manager a perfect business and they’ll show you the door. No business is without risk and if you don’t present these risks and how you intend to address them, the loan manager may rightly assume that you haven’t thought about it. Imagine you’re completing due diligence. As a buyer you dig as deep as you can to uncover any discrepancies with the business, because the potential investment represents your future lively hood. For a loan manager, you are the investment, and of all the risks they could take, perhaps the biggest one, is not knowing the risks.
5. Prepare For Failure
Just because one bank knocks you back, doesn’t mean that another will. Your first business loan will most likely be the most difficult to procure because, having never borrowed this much money before, the banks can perceive you as being a higher risk (which is bad). Use the knock backs to practice and hone your presentation. Focus your efforts on banks that support business types like your own. For example, if you’re buying a SME, research banks that fund SME’s. Keep trying until you succeed, but it’s always important to have a back up plan in place if all else fails.
As a borrower, it’s important to keep in mind that banks make money off loans. They DO want to give them, but only so long as they can trust the borrower. Times are tough at the moment, which does make it harder, but it doesn’t mean you can’t get ahead of the pack. If you are prepared, confident and present well you can greatly increase your chances of obtaining funding. Good Luck!
By Zoran Sarabaca
1Glenda Korporaal, “Banks have been focusing on lending for houses at the expense of business”, The Australian, (http://www.theaustralian.com.au/business/opinion/banks-have-been-focusing-on-lending-for-housing-at-the-expense-of-business/story-e6frg9if-1225928591880), September 24, 2010