Getting Ready for Finance

Transcription

1 Getting Ready fr Finance When yur business needs finance it is imprtant t plan yur apprach t ptential lenders prir t making the appintment t present yur applicatin. The reasn fr this is that a well-prepared applicatin will stand a much better chance f being successful. Many businesses fail t plan fr finance, r use the wrng finance ptins in their business (such as using an verdraft t buy new capital equipment). Planning fr finance is imprtant because it lwers the risk t the lender and allws yu t ensure that as a business wner, yu can adequately manage and apprpriately utilise the finance yu btain. Make it wrk fr yur business, nt against yu! The key cnsideratins f a finance plan shuld be: Can the business affrd t make the principal and interest repayment n time every time? Has the bank enugh security t recver the debt if the business cannt make the repayments? What is the track recrd f the business with lenders? These three cmpnents will be the mst imprtant cnsideratin frm a bank s perspective, especially the track recrd f the business. The business banking manager will lk at the past relatinship they (r ther financial institutins) have had with yur business and whether yu have been able t keep n track with lans in the past. This will then determine t a large extent, the trust the bank has with financial prjectins yu have made in yur applicatin. Purpse f the Getting Ready fr Finance Checklist The Department f Trade and Ecnmic Develpment has put tgether the fllwing checklist t help yu in the preparatin f a finance applicatin t a bank r finance cmpany. It is designed t guide yu thrugh the prcess f btaining the mst effective finance fr yur business. The fllwing checklist will help yu t gain an understanding f the srts f questins that a lender is likely t ask abut yur applicatin, as well as the srt f infrmatin that is required t put tgether a prfessinal (and successful) presentatin. Instructins Prceed thrugh each item f the checklist and its crrespnding links, ticking ff each bx as yu cmplete the crrespnding task. KEY FINANCE ISSUE / TASK 1. Identify which type f finance yu need There are three main categries: Prperty finance Wrking capital finance Plant and equipment finance 2. Identify which types f facilities yu need Shrt term: Overdraft Shrt term cmmercial bills Bridging finance Letter f credit Medium t lng term: Cmmercial lan Lng term cmmercial bills Cmmercial prperty lan Fully drawn advance Develpment lan Hire purchase Debt factring Hme equity lan Leasing 3. Find ut wh ffers the prduct(s) yu need n the best terms Cmpleted N/A

2 4. Develp the lan prpsal, including: The purpse f the lan Outline the fllwing: Amunt and term f lan required What the funding is required fr Wh the lan will be paid t at settlement Hw the lan is t be repaid What security yu are ffering fr the lan What the valuatin f the security is Whether there is an independent valuatin f the security f nt Whether there are any cntract details and if s what these are Whether there is a settlement date n the cntract Facilities required Applicant details Outline the fllwing: The brrwing entity The legal descriptin f the brrwing entity Determine whether there will be guarantrs and utline names and details f these peple in the prpsal The wners and managers details The cntact details f yur accuntant and slicitr Details f yur current banker Determine whether legal dcuments are required in the prpsal KEY FINANCE ISSUE / TASK Business and industry details Outline the fllwing: The management team Yur prducts and services The histry f the business Details f the market yu perate in Resurces and lcatin f yur business What plant and equipment and ther resurces yur business currently wns Yur cmpetitrs Where yur business fits in the market in relatin t yur cmpetitrs Yur key suppliers Yur key custmers Key staff and their rles within the business Financial details Outline the fllwing: Financial statements Cash flw prjectins Current brrwings and facilities Persnal assets and liabilities Security ffered Real estate Plant and equipment Other assets Include details f any guarantees t be ffered Cllateral business Yu may wish t take advantage f ther services the financial institutin has n ffer this is value adding fr the bank and may result in ptential cst savings fr yur business. Yu may wish t investigate the fllwing services and supply details f yur current arrangements: Insurance Superannuatin Payrll services Investment advice Are EFTPOS r credit card facilities supplied? Are n-line banking facilities supplied? Are bank guarantees supplied? 5. Plan yur presentatin Make sure yu have dcumented all f the issues cvered abve Understand and investigate any tax cnsequences Seek prfessinal advice if yu are unsure abut any aspects f yur prpsal Apprach mre than ne lender - shp arund fr the best deal! N respnsibility fr any lss r damage hwsever caused by reliance n any f the infrmatin r advice prvided by r n behalf f the State f Suth Australia r the prviders f this service r damage arising frm acts r missins made is accepted by the State f Suth Australia, the prviders f this service r their fficers, servants r agents. Cmpleted N/A Department f Trade and Ecnmic Develpment GPO Bx 1264 T r E dtedinf@state.sa.gv.au

3 6. The Presentatin Make sure yu have allwed the lender enugh time t carefully cnsider the prpsal Make sure that yu present the prpsal prfessinally (n shrts r thngs!) Be hnest in presenting yur business fr finance as it builds trust between yu and the financial institutin Be psitive sell yur prpsal t the lender get them excited abut ding business with yu Ask fr a decisin date t allw yu time t rganise delivery, settlement r alternative arrangements Final questins Hw much will the bank r finance cmpany lend me? Will my prpsal be successful? Getting Ready fr Finance What type f finance d yu need? The first place t start is t determine what type f finance is required. There are three main categries f finance: Prperty Finance T finance the acquisitin f a prperty r t re-finance an existing prperty lan. Wrking Capital Finance T finance stck, debtrs and verheads in a business. Plant & Equipment Finance Fr new r used plant and equipment, mtr vehicles, furniture and fittings. What types f facilities are yu lking fr? Once yu have determined the type f finance, it is then imprtant t select the right prduct t match. Generally speaking, shrt-term finance shuld be used fr shrt-term assets, such as stck r debtrs, and lng-term finance shuld be used fr lng-term assets, such as prperty. Fllwing is an verview f the mst cmmn types f finance facilities. Shrt Term TYPE Overdraft facility Shrt term cmmercial bills Bridging finance Letter f credit DEFINITION A credit limit n a cheque accunt that prvides the business with shrt-term funds fr wrking capital. This is cnsidered a shrt-term facility as the bank can withdraw the facility by giving the business ntice (generally a mnth). A frm f cmmercial lan that can be structured n an interest nly basis, r reducing basis, fr shrt-term debt. A lan facility that allws a new prperty purchase befre the existing prperty is sld. A shrt term finance facility fr imprt and exprt business usually negtiated in freign currency. Lng Term TYPE Cmmercial lan Lng term cmmercial bills Cmmercial prperty lan Fully drawn advance Develpment lan Hire purchase Debt factring Hme equity lan Leasing Majr Surces f Finance Once yu have determined the prduct(s) yu are lking fr, the next step is t find ut wh has thse prducts n the best terms. The majr surces f finance are as fllws: DEFINITION Lans fr mst cmmercial purpses such as prperty, wrking capital r plant and equipment. A frm f cmmercial lan that can be structured n an interest nly basis, r reducing basis fr lng-term debt. A cmmercial lan that is specifically written fr prperty. This is nrmally a medium t lng term lan. A lan facility that reduces n a principal and interest basis ver a fixed term. Lans tailred fr develpments that can be drawn dwn in prgress payments as required up t an agreed ttal. A lan facility fr plant and equipment that has a fixed term with fixed mnthly principal and interest repayments and als may have a final lump sum instalment r balln payment. A wrking capital facility with a limit based n a percentage f the debtr payments due t the business. A lan that is secured by the equity in a brrwer s hme. A finance cntract based n mnthly rental payments in advance r arrears ver fixed term with a residual payment due at the end. Nrmally used fr plant and equipment. Majr Trading Banks All f the facilities are available frm the majr banks such as Natinal Australia Bank, Cmmnwealth Bank f Australia, ANZ and Westpac, and many are available frm Suth Australian banks such as Bank SA and Adelaide Bank. Finance Cmpanies Offer a gd range f cmmercial plant and equipment prducts and wrking capital facilities. Accuntants Yur accuntant may be able t arrange business finance n yur behalf. Finance Brkers A finance brker will arrange finance n yur behalf n a cmmissin basis. Merchant Banks Mstly fr large transactins. Friendly Scieties Have a limited range f cmmercial prducts, but are cmpetitive fr persnal lending. Building Scieties Have a limited range f cmmercial prducts, but are cmpetitive fr persnal lending. N respnsibility fr any lss r damage hwsever caused by reliance n any f the infrmatin r advice prvided by r n behalf f the State f Suth Australia r the prviders f this service r damage arising frm acts r missins made is accepted by the State f Suth Australia, the prviders f this service r their fficers, servants r agents. Department f Trade and Ecnmic Develpment GPO Bx 1264 T r E dtedinf@state.sa.gv.au

4 Develping the Lan Prpsal Purpse f the lan A lender will want t knw in detail what yu require finance fr, as well as the terms and facilities yu require. This includes: Amunt and term f lan required - Hw much yu need and hw lng yu need it fr. What the funding is required fr - Wh the mney will be paid t at settlement and the breakdwn f plant & equipment, wrking capital etc. Repayment surce Where the repayments cme frm. This may be frm revenue frm the business cntinuing at the current rate; perhaps frm increased sales due t the purchase f additinal capacity in the frm f equipment, r it may be frm reduced csts due t imprved technlgies within the business by the purchase f new equipment. It is imprtant t detail exactly hw the funds are being generated t pay fr the lan. What security yu are ffering fr the lan The assets that are being ffered t the lender as security fr the lan. The fllwing table illustrates the value f different types f assets: TYPE OF ASSET LENDING VALUATION RATIO (LVR) Stck 20-30% Debtrs 20-75% Plant & Equipment % Prperty 60-75% It is imprtant t remember that the different lending valuatin ratis are dependent n varying factrs. Fr further infrmatin, refer t the sectin n Hw much will the bank lend me? Valuatins f security What the assets t be ffered as security are wrth, and the details f any independent valuatin. Independent valuatins can be imprtant, hwever, it shuld be remembered that they will cst the business mney t btain. In sme cases the bank may request an independent valuatin. Als detail whether there is an independent valuatin f the security r nt. Cntract details The details f any cntract fr the purchase f a prperty, business, r plant & equipment, with a cpy prvided in the applicatin. Settlement date What date d yu have t pay the vendr, r supplier f gds. Facility type What types f prducts r facilities are required. Yu may need mre than ne type f facility. Legal descriptin f the entity (ie ABN/ACN & ABC fr a cmpany, cmpany structure etc). Guarantrs The names and details f the individuals that will prvide persnal guarantees fr the lans. Owners and Managers The wners and managers names and details. Accuntant and Slicitr Cntact details in case the bank requires further legal r financial infrmatin. Bankers - Current bankers details. Legal Dcuments Examples - Cpies f Partnership Agreement, Cnstitutin f Cmpany, r Trust Deed fr a Trust. Business & Industry Details Management Outline the management team and the structure and backgrund f yur business Prducts and Services What are yu ffering t the market? Histry The track recrd f the business and hw yu came t be where yu are tday. The market Outline the gegraphical lcatin, size, grwth levels, trends, and number f cmpetitrs in yur market. Resurces and lcatin Where the business currently perates frm, and what plant and equipment and ther resurces it uses. Cmpetitin prvide a prfile f the cmpetitin, their capabilities, lcatin, strengths and weaknesses and where yur business fits in relatin t them. Suppliers The details f the key suppliers f resurces t the business. Custmers Outline briefly yur key custmers (details f their value t yur business). Key staff Details f the key emplyees f the business and their rles within the business. Financial Details Financial Statements Include financial statements fr yur business fr the last three years. Cash Flw Prjectins Supply prjectins fr at least the next twelve mnths, particularly in regard t the purchase f new equipment, which shuld increase revenue and/r reduce csts. Current Brrwing's Detail the current facilities and terms f any brrwings against the business Persnal Assets and Liabilities A statement f assets and liabilities f all guarantrs. Applicant Details Describe and explain yur business; yur histry, yur management skills and gaps, yur financial details and track recrd etc. Prvide as much infrmatin as pssible and be hnest with the lender. Brrwing entity Details f the brrwers r the entity that is t be the brrwer. Security N respnsibility fr any lss r damage hwsever caused by reliance n any f the infrmatin r advice prvided by r n behalf f the State f Suth Australia r the prviders f this service r damage arising frm acts r missins made is accepted by the State f Suth Australia, the prviders f this service r their fficers, servants r agents. Real Estate If yur business is prviding real estate as security fr the lan, utline the legal descriptin and address f the prperty. Plant & Equipment If yu business is prviding plant and equipment as security fr the lan, prvide details f each item Department f Trade and Ecnmic Develpment GPO Bx 1264 T r E dtedinf@state.sa.gv.au

5 Other Assets Descriptin f any ther assets t be ffered as security. Guarantees Details f any guarantees t be ffered. If yu deal with what are cnsidered blue chip cmpanies r Gvernment, the lending valuatin rati will be higher than if yu are dealing mainly with small cmpanies. Planning Yur Presentatin Be Prepared Fllw the checklist t ensure that yu have gathered all the relevant infrmatin that may be required. Understand the taxatin cnsequences f the facilities required by yur business yu may need t ask yur accuntant abut the tax cnsequences f the facilities yu have chsen. Often there is a different tax treatment f ne prduct versus anther in terms f the timing f deductins, depreciatin allwances r GST. GST Checklist fr Finance PRODUCT GST STATUS TAXABL E SUPPLY Overdraft Facility Input taxed N Cmmercial Lans Input taxed N Cmmercial Bills Input taxed N Cmmercial Prperty Lans Input taxed N Fully Drawn Advance Input taxed N Bridging Finance Input taxed N Develpment Lans Input taxed N Hire Purchase Principal is Taxable Interest is Input Taxed Yes Debt Factring Input taxed N Hme Equity Lans Input taxed N Leasing Taxable Yes Letters f Credit Input taxed N N Hw will I knw if my prpsal will be successful? It must have these essential elements: Servicing Ability Can I cmfrtably affrd the principal and interest repayments n time every time? Security Des the bank have sufficient security t recver its debt if I can t make the repayments? Track Recrd Have yu been able t d what yu said yu culd d in yur dealings with banks in the past? Yu can be reasnably cnfident f success if yu have explained these elements in yu prpsal. Hw much will the bank r finance cmpany lend me? This will depend n the quality f the assets being ffered as security, but this table may help yu t wrk ut hw much yu can brrw: TYPE OF ASSET LENDING VALUATION RATIO (LVR) Stck 20-50% Debtrs 20-75% Plant & Equipment % Prperty 60-75% Generally speaking, assets will scre a higher LVR if the bank can easily identify and sell them in the case f default in repayments. It is imprtant t remember that the different lending valuatin ratis are dependent n varying factrs. Stck is dependent n hw easy it is t sell, n what cnditins the raw materials were sld t the business, the prcessing time frm raw material t finished gds, and whether the stck may deterirate quickly (an example is fd related prducts). Debtrs are dependent n their quality. N respnsibility fr any lss r damage hwsever caused by reliance n any f the infrmatin r advice prvided by r n behalf f the State f Suth Australia r the prviders f this service r damage arising frm acts r missins made is accepted by the State f Suth Australia, the prviders f this service r their fficers, servants r agents. Department f Trade and Ecnmic Develpment GPO Bx 1264 T r E dtedinf@state.sa.gv.au