Frequently Asked Questions For Business Lending
Please find some general information below – note, this is general advice only and Jobelle Finance has not considered your individual circumstances when writing any of the information on the www.jobellefinance.com.au website. It is provided in good faith to give you some guidance around the process. At the time of writing we believe to the best of our ability the information provided is accurate and this website is kept up to date on a regular basis
We encourage everyone who is looking for information for their own circumstances to contact us directly to discuss.
Don’t worry if you have a question that is not listed below – just hop over to our Contact’s page and send me an email or give me a call.
In the Banking World we talk about the 5 C’s of credit being capacity (can you afford it based on the historical or projected financial performance of the business), collateral (what is securing the transaction and how likely is it will cover the debt in a default), character (who is running the business, what experience do they have and are they trustworthy – in other words do they have the ability and willingness to repay the debt back), conditions (the state of the wider industry/economy, regulations that impact the industry and even level of competition) and capital (how much equity is the business owner contributing to this specific transaction and also can cover how much liquidity is within a business to cover unexpected events). Business Bankers and Risk Officers will want a picture of what the above looks like in order to see if it is something that falls within their risk apetite.
When assessing it is unlikely that every single box has a big tick next to it hence why many business banking applications are assessed manually. The art of submitting successful applications is a full understanding of the business currently as well as an understanding of the goals and objectives and key business strategies in order to provide mitigants to risks identified to the business and in particular to the continuity and consistency of cash flow. A well written application presented to a bank with the appetite to lend to that particular business has a high chance of being approved – it is just a case of marrying the two together!
When lending for business purposes the lending can be either secured by property (residential including your own home or commercial), secured by equipment/other assets (for asset finance), secured by the business in certain industries or unsecured. As a general minimum the Director’s of a business will be required to provide guarantees and as a maximum there can be a bundle of securities against a loan. Again it will come back to the appetite of particular lenders, the structure of the overall transaction, strength of other parts of the deal (e.g. maybe servicing is very strong) and sometimes the purpose and reason why you don’t want your home tied in.
If you are thinking of borrowing for your business and want to discuss security arrangements, give Gareth @ Jobelle Finance a call today
I've had business and commercial loans in the past and they are generally more expensive than home loans - why is this? Also why do they not always move with Reserve Bank rate changes?
Okay – firstly perhaps your business loan was expensive as you didn’t use the experience and contacts of a finance broker to get you a cheaper deal with the same terms! (too salesy perhaps!!! Couldn’t help it)…
Generally business loans are more expensive than home loans as they are more expensive for the lenders to have on their books. In particular banks have to hold more capital in their balance sheet for business loans as opposed to home loans due to regulation so they cannot lend as much for every dollar they hold in capital. The best way to think about it is business loans are on average more risky than a home loan (i.e. more likely to cause a loss to the lender) so there is a risk/reward proposition.
In terms of rates, lenders fund their own balance sheet on rates that are not directly aligned with the Reserve Bank cash rate as they have varying sources of deposits some of which are from offshore funders. There is also less media pressure around rate change time for banks to move rates as opposed to home loans. Generally banks will make a decision on their home loans before their business loans. If this is an issue though there are products available that are based off a market rate such as the Bank Bill Swap Rate which is effectively a more transparent way of pricing. And of course fixed rate loans provide piece of mind and consistency as they are unaffected by rate movements…
I’m always happy to discuss the above in real life having worked in the Treasury Department of an Australian bank however it is a lot more complicated than the papers make out!
I have a reasonably large commercial property investment loan and the bank asks me for an annual review every year. Is this the same for all lenders?
Whilst it is common for loans over usually over $1m to be annually reviewed (and sometimes repriced!) there are lenders that are comfortable to have ‘set and forget’ type loans with no annual reviews. The on-going requirements of lenders is an important consideration when entering into a loan agreement hence why it is good to have a broker on your side to either find a lender that suits your needs or negotiate the terms and conditions that may cause some pain. And of course we are here to assist you with annual reviews in any case so we can submit the required paperwork to the lender to ensure a smoother process.
Contact us if you are unhappy with your current arrangements or want to review you current business lending.
Some lenders are very good at asset finance transactions and make it very smooth for the business owner. Generally this is for ‘standard’ types of good and some are able to process transactions with limited information. If you regularly purchase equipment an asset finance facility limit may be able to be set-up which can speed things up down the track! Of course things are always changing and certain times of the year some lenders will get bottlenecks in their deal processing – always best to give me a call to provide a range of options with sharp rates.
I am struggling to pay back my business loan and have had letters from the bank I am ignoring. What can I do?
The first thing I suggest is pick up the phone and give us a call – no need to be embarrassed as trying times test many at some stage or another. The most important thing is that you do something about it and quickly.
We have experience dealing with distressed businesses for a number of reasons and have found that a well presented case (and potential solution) will usually at the very least provide you some time to work through to get back into a more sustainable situation going forward. The last thing a lender wants to do is sell up assets (particularly for complicated structures) and getting on the front foot shows that you have a reputable character and understanding of your business and they will generally look to work with you rather than against you. It may be the case that you are better suited to another lender who can structure repayments to make things easier – it all depends on circumstances.
As we generally will not receive a commission from the bank in this situation there may be fees for this service however the terms and conditions will be agreed prior to you incurring any costs but it costs you nothing to give Gareth @ Jobelle Finance a call or email now!
This is a difficult question to answer and the reason is that business lending is so varied in terms of the purpose of the lending, the structure and security for the loan, the differing policies for different industries – there is generally a lot for a bank to assess before making a decision.
If you are after fast money however there are some lenders that can turn around a proposal and fund within a couple of days. One thing you can be assured though is that we do everything possible to keep things moving through the system efficiently and by providing lenders what they require in the format they need upfront we can reduce the overall time for an application.
Call Gareth @ Jobelle Finance today for a discussion and an outline of the process required to get business finance.
This is not always the case and I have assisted customers in the past start-up their businesses. Refer to the question above about how a lender assesses credit – it just means we have to work a bit harder putting together the right elements in an application to lower the perceived risk from the lender.
Start-ups require a bit more information as they are generally riskier to lend to than an established business with proven history. The types of information lenders may be looking for will be a CV on the business owners and key staff, budgets/cash flow projections and a full business plan. As a start-up business owner though a lot of this information is going to give you a lot of guidance anyway in how you roll out your business so worthwhile putting a lot of thought into it – don’t just do it because the lenders have asked for it!
Call Gareth @ Jobelle Finance today to discuss further on how we can get you prepared for a successful finance application.