11/07/2018 by Pascoe Partners Accountants
You would have to be living under a rock to miss the publicity surrounding the banking royal commission.
We are already seeing the fallout from this inquiry with banks tightening the requirements for new loan applications.
In light of these changes, following a few loan application tips can help you overcome some of the challenges of dealing with the banks and give you a better chance of successfully securing the loan you need.
Anything even slightly out of the ordinary with a home loan application generally means that the big four banks will not be easy to deal with, if they agree to deal with you at all.
Credit assessments are getting very strict with looking at security requirements and the servicing of the loans.
We have, however, had some success with Macquarie Bank, as we’ve been able to talk to the credit department to walk through some of the trickier set ups encountered.
Commercial seems to be a little easier – probably due to the level of experience of the front-facing staff of the bank. They seem to have more understanding of common business structures and how we, as accountants, structure clients’ affairs for various reasons.
We are seeing many of the same issues come up again and again. But what can we do to help your chances of success?
The most important loan application tip is to be up-to-date with your tax obligations in lodgements and payments.
It is common for the bank to request a copy of your integrated client account printout from the Tax Office, which shows how much you owe and when your Business Activity Statements were lodged. Falling behind on either of these requirements will be a red light to the bank.
To keep your lodgements up to date, you need to keep your bookwork current. Some of the banks are including half-yearly or quarterly financial statements as part of the loan covenants.
The only way we can assist you in satisfying such a requirement is if your books are reconciled on a regular basis, in a timely fashion, at the close of each month.
You should also make sure that the loan application presents your financial position in its best light. Your business should show consistent profits and strong cash flows.
If you are having trouble managing the variable cash flows in your business, consider preparing an annual budget that you compare to the actual results on a regular basis.
All businesses should have a budget as it is the ‘GPS’ for your business – as per our earlier article. We have access to some great software that can integrate with XERO and MYOB live files that make budgeting a breeze.
Banks are calling for a copy of budgets, particularly three-way forecasts, which also show the impact of your budget on your balance sheet. Again, the new software works particularly well in this area.
Some business owners are averse to showing profits, as this means tax to pay. If you control your cash flow, you will have the money to meet the tax liability when it is due. Even at the top rate of tax, $1 of profit means $0.55 cents in your pocket. Manage your debtors and don’t become a bank for them!
If you’re planning on making a loan application, speak to us first. We can help you prepare your application for the best possible chance of approval.