If this is your first business venture, whether buying a job, or taken a redundancy package, your prospective lender would be very pleased, and regard rather favourably your enrolment in a small business management course. Too many businesses fail today because their owners know everything. You may be the best salesman around, but that doesn't make you a good manager. You may be a good tradesman, but that doesn't make you a good stock and credit controller. You may be a good accountant, but that doesn't make you a good marketing and business strategist. And I mean this with the utmost of respect.

When contingencies occur, you need to have a plan to address the unforeseen. If you want to borrow money, be mindful that YOU will be the captain of the ship. You will be the sole decision maker, and the success or failure of your venture will rest entirely upon your own shoulders, nobody else. Forget GST, economy, bad weather, bad debts, broken vehicles, industrial strikes or illness, you have to show the lender that you have a plan to address those and any other contingencies during your loan period.

Bank managers lend other peoples money. Shareholders trust the bank will lend in a responsible manner, and that's exactly what the manager will do, act responsibly. That means you will have to convince the lender your application represents the lowest risk of default attainable. They want you to make money, just as they want to, so make sure you are commercially prepared. 

Soft lending is when a bank or other financial institution lends money on intangible security. Everything is calculated on a "forced sale scenario". Intangible security is goodwill and  intellectual property, sometimes even a friendly relationship with the manager. It offers no real tangible item that may be offered for sale which is quite unacceptable to banks and their shareholders. Very little soft lending is done today, and if it is available interest on the principle amount borrowed is usually extraordinarily high. Excessive interest eats into your profit margin, and increases your risk factor.

Secure Lending is the preferred method. Security lending takes into account the value of your Land and Buildings, Plant & Equipment,  Fixtures & Fittings, Debtors Ledger and your future income. The Profit & Loss statements of the business over the past three years of trading also help the lender determine outcome levels. After all expenses, the assessment will be based on the likelihood of your ability to make regular payments. Often there is a shortfall in the percentage a bank will lend relating to the tangible security the business has to offer. However, a bank will seriously consider, and favourably look at residential security to top up the difference.  A bank will often agree to a reduced interest rate on the portion of residential security. This method also satisfies Mortgage Insurers.

When to ask

If you ask your bank for a loan prematurely you are only putting your Bank Manager on the spot. The manager may respond favourably, but it will be verbal and not final. If you have not negotiated a price for the business you would make a fool of yourself if you don't know how much you need to borrow. There is a set protocol and it is in your interest to follow the correct course with the necessary  documentation. If you want a quick response from the bank, be prepared before you apply. 

Here is what you will need:

To assist with approval of your application, any additional documents required by the lender should be tendered on request, without delay. All of this information is to assess the level of security, and your proposals' percentage risk factor, and the ability of the business to service the loan ~ in addition to your total living expenses for the duration of your loan, and BEWARE of HIDDEN COSTS.

Well I'm not so sure they are actually hidden, I call them phantom costs. Other reps and agents have accused me of telling people too much. Claims that if I identify all of the negatives, that nobody would buy anything and all I am doing is losing sales. Not the case I'm afraid, never the case. You're the borrower and it's you that has to pay the money back. You need to know as much as there is to know. The more you understand your costs are, the lower and better risk you are to your lender. The last thing you want is somebody knocking on your door in your first week looking for money. Phantom costs that must be taken into consideration before you start.

The level of stock, rent and salary in hand will be determined by the percentage of cash sales to total sales per day, week or month. 
Eg, if your buying a pub, service station or taxi, your sales are nearly all cash, hence less reserves needed. If you're buying say a builders-supply your sales will be nearly all monthly credit. Be careful, you can have too much stock on your shelf or too little; that could cost you customers. Your business credit policy is one of the most important elements for survival, and the dates on which you order your stock in relation to early settlement discount incentives sometimes offered by suppliers may get you nearly 60 days free credit. Your bank will be very interested in your credit policy and cash flow forecast.

I could close this page buy wishing you good luck, but if you follow these simple steps you won't need luck, your money will be there. Just remember this, the level of debt in business is far too high. In the old days, if the mechanic shop needed a new ute, the owner would save then buy. Pay the money and you still get the tax benefits. Most financiers are huge conglomerates because people can't control their emotion of want. Remember, we know marketing, we like to think we are experts examining deep into the functions of our brain and marketing today is so powerful that every deal on television always appears to be the deal of the century, and there's nothing wrong with that. That's what marketing is all about. 

Your cash flow forecast hopefully if you stick to it [should be your business bible] should help you control your want and need emotions. If you borrow too much, then too many hours of your labour will be for the the tellers wages, not yours. 

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