Maybe you’re about to take your business into a new stage of growth, or you’ve decided to embark on a new venture entirely. Either way, securing business financing is going to be an essential step.
This is always an exciting time, but you shouldn’t rush it. Heading straight down to a finance broker with a folder full of spreadsheets and a good elevator pitch might get you a loan, but it’s probably not the smartest way to proceed.
Here’s what you should know about business financing before jumping into it.
The key to business financing is presenting your information properly.
Successfully securing funding is all about the way you package and present your information. It needs to provide an accurate picture of your business finances while still remaining engaging enough that potential financiers don’t lose interest.
To really make an impact, the source of the information needs to have a high level of financial integrity. As a successful and hardworking business owner, you’re probably nodding your head right now. Unfortunately, this fact alone usually isn’t enough to guarantee that you’ll be perceived as having financial integrity.
Instead, you should be presenting to financiers alongside a small team of respected financial professionals, like a business advisor and a finance broker. This adds a level of professionalism and formality to your presentation. The financier needs to know that they can trust your business with their money.
Having a small team presents a much stronger impression than showing up alone.
Why is this so important? I’ll give you an example.
Recently, we helped a client secure some capital finance for a new facility. We cleaned up his financial information and presented it in a clear and readable format. From there, we developed detailed cash flow forecasts that accurately showed where his business was heading.
Once we’d established a narrative to present alongside the numbers, we workshopped the proposal with a broker to make sure we took the most effective approach. When it came time to meet with the financier, both myself and the broker were there to help the client present the information smoothly and confidently.
In the end, our client was able to secure financing for an $800,000 commercial facility from a second-tier lender. This client knew that approaching a potential financier alone just wouldn’t have achieved the same result, and that’s why they came to us.
You’ve got to have a clear idea of your needs. Which tier of financier is right for you?
Of course, before you get to that stage, you need to develop a clear idea of what your needs are. You can’t just start asking for business financing.
Why exactly do you need the money? How are you planning to pay it back? Having clear answers to these questions will help you make sure you pick the best type of business financing for you.
When it comes to commercial lending, there are generally three tiers of business funding available:
- First-tier Lenders are APRA regulated lenders. These are the big banks; think Commonwealth, Westpac, ANZ etc. Lending is highly regulated with rigid repayment terms. These are hard to get and are not always the most flexible option.
- Second-tier Lenders are ASIC regulated lenders. These are non-bank entities like building societies or credit unions. They’re free from some of the more stringent banking regulations and are generally much more flexible in nature.
- Third-tier Lenders are private, unregulated lenders. This includes things like private trust funds, equity financing and P2P lending platforms. These often provide highly competitive rates and added flexibility. However, it can come with higher associated risks.
With rolling lockdowns keeping the big banks in a conservative mood, most business financing in Australia is currently happening amongst second and third-tier lenders.
This means that there’s plenty of opportunities to shop around and find a flexible loan that meets your needs and circumstances. And the perfect person to help you sift through the jungle of different options is a broker.
Talking with a broker is an essential part of the process.
A finance broker is a lending & financing expert.
They use their specialist financial knowledge, their negotiation experience and their professional connections to help clients secure financing opportunities they wouldn’t be able to get on their own.
It’s best to engage with a broker early in the planning process. This gives you a chance to get their insight on your proposal, so you can workshop the best financing solution together.
For instance, when a client comes to us for business financing services, we’ll bring in Chris Rathgen from Compare Financial Services. Not only is he a valued client of ours, Chris is a fantastic broker and our preferred partner in this area. By following his guidance and utilising his connections, we can guide our clients towards better loan outcomes.
Of course, we’re always happy to work with a client’s preferred broker. A lot of businesses will have a broker that they already love working with. The important thing is that you’re working with someone who understands your business. The right finance broker can open doors you didn’t even know were there.
Don’t forget to review your existing finances first.
Finally, it’s always important to review your existing financial structure before you start. You’ll need to prepare it for any new financing obligations you’ll be taking on. Make sure that all of your personal assets are kept in a completely separate silo, away from your business finances.
It might sound simple, but you’d be surprised how many borrowers don’t take this step first. There’s no need to leverage your house or your family’s finances on your next business decision, so don’t do it.
Instead, always make sure that you’ve taken it out of the equation entirely.
Once you’ve taken these 5 steps, you’ll be ready to start securing the perfect commercial loan for your needs. As experienced business advisors, we’re happy to guide you through this process from start to finish.
Whether you’re starting a new venture or expanding your existing business, reach out to us today for business financing advice. We’ll work closely with Compare Financial Services to make sure that you get the best deal out there for your business.
Disclaimer: This advice is general in nature and does not take into account your personal objectives, financial situation or needs. You should consider whether this advice is suitable for you and your personal circumstances before acting on it.